Non-Executive Directors (NEDs) are facing fresh challenges as the businesses they are associated with grapple with ongoing impacts of COVID on cashflow, (re)forecasting, supply chain blockages and restrictions, skills shortages, and the appetite of banking partners to take on changing levels of risk.

Treasury may or may not be a specific area of focus for NEDs but an understanding of its impact on all parts of a business is critical. A request to management for a reporting framework for treasury activity is a pragmatic way to provide satisfaction to individual NEDs and to the Board as a whole that treasury is being managed appropriately and in compliance with regulations. NEDs should take care that this is not construed as trying to ‘take over’ a project or strategy.

Key treasury areas that underpin a strong reporting framework for NEDs are:

• Cashflow forecasting – in the absence of good cashflow forecasting, liquidity and solvency issues come into question.
• Capital structure and funding – without a sound capital structure and funding facilities, any capex and wider growth ambitions may stall.
• Treasury policy – without clear treasury policy, reporting and payment authority protocols, the business could potentially be open to fraud and mismanagement.

Businesses change over time and their treasury focus should reflect those changes. The fact that a process, funding structure or hedging strategy “has always been done that way” should not preclude a NED from asking questions. Is the timing right now to review past practices? Such review may not lead to change – but will provide comfort that ‘current’ thinking has been tested against best practice.

Good reporting is forward focused. Knowing where a company sits now against policy controls, ratios and covenants is interesting (and necessary) but full visibility on future trends and associated risks is of even greater benefit. This enables discussion around remedial action or alternative courses of action ahead of time. Reporting should answer questions like:

• What will our cash position be in 3, 6, 12 months?
• What will our debt and hedging profile look like over the next year, and beyond?
• Are our funding/credit lines still a good fit for the business? At market? When do they expire?
• Have we sufficient headroom in facilities, covenants, etc?
• When is the next review date for the treasury policy?

While there is no ‘standard’ treasury reporting pack for NEDs, Bancorp Treasury and Barrington work with a wide range of clients to produce reporting dashboards suitable for Board presentation.

If you would like to gain a clearer view across key treasury areas, call Dean Sharrar on:

(New Zealand) 021 608 336 or email d.sharrar@bancorptreasury.com

(Australia) 1800 425079 or email d.sharrar@barringtontreasury.com