The Evolving Role of Corporate Treasury in Strategic Decision-Making

Today, Treasury is increasingly seen as a strategic partner in decision-making, helping organizations meet financial challenges, optimize capital structures, and drive growth. This shift is not just about managing cash flow; it’s about influencing and shaping key business decisions that impact long-term performance.

Sunny Gutta shares with us 7 areas in which Treasury is evolving from a traditional financial function to a more strategic, value-driven partner within organizations.

---

1. Capital Allocation and Investment Strategy 

Historically, Treasury’s role in capital allocation was largely focused on ensuring that the company had sufficient liquidity to meet its obligations. Today, the Treasury department is becoming a more integral part of strategic capital allocation, advising senior management on how to deploy capital effectively to support growth initiatives. 

For instance, in large corporations, Treasury teams now work closely with the executive team to decide on investments, mergers, and acquisitions. They analyze the potential risks and returns of various capital projects and assess the most efficient ways to fund them, whether through debt issuance, equity financing, or internal cash reserves. This has been particularly relevant in sectors like technology, where rapid expansion often requires significant capital investment. 

Examples: 

• A pre-IPO company relies heavily on Treasury to spearhead the IPO process right from building the bank syndicate to market the deal to deploying the IPO proceeds
• A hypergrowth company may lean on the Treasury team to evaluate the best financing option for a new product development initiative that will minimize costs while maintaining financial flexibility 
• A well-capitalized mature company depends on Treasury team to drive its annual capital plan and how to deploy the FCF – repay debt, buy back shares or pay dividends 

2. Risk Evaluation and Management 

One of the most significant areas where Treasury has become a key player is risk management. It’s probably a well-known fact that Treasury plays a central role in identifying, quantifying, and managing financial risks, including currency fluctuations, commodity price changes, and interest rate volatility risks. A lesser-known fact though is that Treasury also manages an organization’s corporate insurance program that includes policies like cyber insurance, property & casualty insurance, management liability insurance program, etc. 

To manage financial risks, Treasury departments use sophisticated tools like derivatives, hedging strategies, and forecasting models to protect the company from unfavorable financial impacts. By doing so, Treasury helps safeguard profitability, cash flow, and overall financial stability. As financial markets become more interconnected, Treasury teams are increasingly relied upon to manage cross-border risk and protect against global macroeconomic uncertainties. 

As part of overseeing the corporate insurance program, Treasury either oversees a captive insurance entity that insures the organization against the risks or secures policies from external underwriters. Treasury needs to identify which risks need to be insured and which can be self-insured, the level of self-insurance retention, and oversee the management of the captive insurance entity. 

Example: 

• A company with international operations might use foreign exchange (FX) hedging strategies to mitigate the impact of fluctuating currency exchange rates on its global sales and costs. Treasury’s strategic oversight ensures that the company’s cash flow is protected from adverse currency movements. 
• A growing technology company that plans to introduce peer-to-peer sales on its platform might need to evaluate the need for product liability to protect itself against any potential liability arising from actions on its platform. 
• A manufacturing company relying on commodities to manufacture its products might evaluate hedging against volatile fluctuations in the cost of its raw material. 

3. Financial Planning and Forecasting 

Treasury frequently collaborates with the Corporate Financial Planning & Analysis teams as part of budgeting and forecasting. Traditionally, Treasury has been focused on cash and liquidity forecasting. However, Treasury now takes a more strategic, proactive, and integrated approach to planning and forecasting. 

For instance, Treasury’s works today actively with both internal partners like Order to Cash and Procure to Pay teams and external partners like Banks and Fintech providers to optimize working capital. Companies with international subsidiaries, have to rethink their intercompany funding processes to release trapped cash to optimize cash and lower debt costs.

Example: 

• A manufacturing company’s Treasury sets up a dynamic discounting supply chain finance program to release liquidity faster to suppliers while lowering the company’s own working capital investments. 
• A global retail company might centralize its cash management through a global cash pooling structure, which allows it to aggregate cash from various regions into a central account, reducing interest costs and increasing cash availability. 
• A white goods manufacturing company’s treasury team leads building a ‘downturn plan’ to evaluate the cash requirements to support operations in periods of sluggish sales (recession) and determine cash conservation steps needed to be taken in that period when capital markets are inaccessible 

---

Read also: 5 Questions for Sunny Gutta, the new treasuryXL expert

---

4. Mergers, Acquisitions and Other Strategic Transactions 

Treasury also plays a critical role in strategic decision-making when it comes to mergers and acquisitions (M&A) and similar strategic transactions. In evaluating these opportunities, Treasury teams assess the financial implications of the deal, including the impact on cash flow, financing structures, and capital allocation. They also help in assessing risks related to debt covenants, post-merger integration, and tax efficiencies. 

In addition, Treasury helps negotiate financing terms for deals, whether it’s structuring debt or equity financing and ensures that the company can manage the financial risks associated with the transaction. 

Example: 

• During an acquisition, Treasury collaborates with the Corporate Development team to build the financial models to evaluate the valuation for the target after taking into consideration the target company’s cash flows and capital structure. 
• Treasury team supports the assessment of whether the company needs to raise additional funds to complete the acquisition or restructure existing debt post-merger.
• Post-merger integrations are a critical area from Treasury perspective as they focus on realizing many of the synergies that were built into the deal planning process.
• In case of a divestiture, Treasury teams often are leaned on to provide Treasury operations for additional transitionary periods.

5. Digital Transformation and Financial Technology (FinTech) 

Another area where Treasury is becoming more involved in strategic decision-making is in the adoption of new financial technologies. Digital transformation has revolutionized the finance function, and Treasury is at the forefront of this shift. From blockchain and artificial intelligence (AI) to robotic process automation (RPA), Treasury teams are leveraging technology to improve cash management, streamline operations, and enhance decision-making. 

Example: 

• A multinational corporation might implement a new Treasury Management System (TMS) to enhance its ability to manage cash flow in real-time, making quicker and more informed decisions regarding funding requirements, short-term investments, or intercompany transactions. 
• Treasury is at the forefront of AL / ML adoption in Finance leveraging it for critical functions such as cash forecasting as well as operational activities such as fraud detection. 

6. Sustainability and ESG (Environmental, Social, and Governance) Initiatives 

In recent years, the focus on sustainability and corporate social responsibility (CSR) has brought Treasury into a more strategic role in driving Environmental, Social, and Governance (ESG) initiatives. As organizations face increasing pressure from investors, regulators, and consumers to adopt sustainable practices, Treasury is becoming involved in financing and structuring green bonds, sustainable investments, and ESG-linked financing. 

Example: 

• An automotive company could issue green bonds to fund the capital expenditure needed for the manufacturing of electric vehicles and batteries. Treasury plays a key role in structuring the bond issuance, having the bonds rated by appropriate entities and ensuring that the capital raised aligns with the company’s broader sustainability objectives. 
• Corporate Treasury can further the ESG goals by incorporating ESG investments into Investment Policy. 

7. Reliable Partner to Help Evaluate Strategic and Financial Impact 

As businesses become more global and complex, Treasury is becoming a critical cross-functional partner to many teams ranging from Investor Relations, and FP&A to business teams like Sales.

These partnerships often go beyond just assessing cash flow impact, thus expanding Treasury’s role beyond just being ‘money handlers’ 

Example: 

• A retail company planning to open a white-labeled consumer card loop in Treasury to support banking/fintech partner evaluation 
• A company under an Activist Investor attack to restructure its share capital finds Treasury working with the Investor Relations team to support the evaluation of the proposal and prepare adequately to present its recommendation to the shareholders. 

Conclusion 

The role of corporate Treasury is evolving from a purely operational function to a strategic, decision-making partner within organizations. As companies face increasingly complex financial challenges and opportunities, Treasury’s ability to influence key areas like capital allocation, risk management, digital transformation, ESG initiatives, and M&A strategy is critical to long-term success. By leveraging its expertise in finance, risk, and technology, Treasury departments are not only safeguarding liquidity and financial health but also driving strategic growth and value creation in an increasingly interconnected world.