Excellent communication is a core skill for almost all treasury positions.
As corporate treasurers, we build relationships with a wide range of people, including lenders, credit-rating agencies, regulators, financial and non-financial colleagues, and many other stakeholders.
Not all of them appreciate the meaning or importance of the technical terms, which are part of a treasurer’s everyday understanding. Agreeing what the important words mean up front is an essential investment in our relationships.
Our first steps in treasury and finance can feel like learning a whole new language. Our new treasury language includes both unfamiliar new terms and new specialised meanings for familiar words in common usage, sometimes known as ‘terms of art’.
Fundamental treasury concepts include ‘EAR’ and ‘EBITDA’. The first time we see or hear them, it’s clear that they are new technical terms.
When studying or revising, I repeatedly ask myself ‘Describe the meaning and importance of…’ both to refresh knowledge and deepen it. For example, let’s describe the meaning and importance of EAR in about 40 words.
Importance of EAR
Good question
This simple question-and-answer structure, ‘Describe the meaning and importance of…’ lets us evolve better and applied answers over time. The ‘importance’ part of the question is open-ended, and expands to address the range of practical cases it’s applied to.
EBITDA
Concepts like ‘EBITDA’ are clearly technical terms, too. If we don’t know what they mean, it’s evident we need to find out quickly, before we get lost in subsequent discussions.
Sometimes treasurers disagree with each other about definitions. The Treasurer’s Wiki can help resolve some of these potential arguments within the treasury community.
Non-treasury colleagues, naturally, have different professional experience and perspectives than ours. We are all looking at the same problems from different, and entirely legitimate, points of view. We can’t assume we’re right and they’re wrong.
At the start of any communication, we need to:
With some groups, consider combining these two steps. The group’s initial understanding of key treasury terms, such as ‘capital’, may be surprisingly diverse.
Many important financial words have multiple meanings in different contexts. This won’t always be obvious, especially if our own professional background has made us very confident about exactly what a particular familiar word means.
Legal and regulatory ‘terms of art’ always need particular care. Indeed, many legal cases have turned on the precise interpretation of the wording of a legal document. Take specialist advice before you sign.
‘Capital’ is an important example of a term of art. Capital has at least five different meanings in finance, ranging through financial accounting, corporate finance, company law and regulation to economics.
Capital also has non-financial meanings. This makes it a particularly tricky term to recognise as a potential problem, and to address.
“As an advisory director with Deloitte, I was working with a highly capable, but diverse team of specialists from a wide range of banking, insurance and corporate treasury backgrounds. We were struggling to deliver a coherent capital management plan for an investment management client.
“We were under severe time pressure and operating out of separate geographic locations. At a certain point I realised that the main barriers to achieving coherence were our significantly divergent understandings of what capital actually was. No wonder we’d been struggling.
“It’s no good having fantastic skills in the team if everyone is pulling in different directions. The output of the discussion was to make sure that the first paragraph of our paper said, ‘For the purposes of this document, “capital” is defined as XYZ.’
“Once we had agreement on the definition, it made everything else a lot easier. But it took a great deal of strength, patience and skill to get everyone on to the same page part way through the project.
“It was tricky as I wasn’t leading the project, but my role was to write a treasury policy, and I couldn’t until agreement on the definition had been reached. Following this experience, I always invest in clarifying key definitions at the start of any project.”
James Leather FCT, project finance manager, Sydney Motorway Corporation
“I try not to have a fixed mindset. I want to learn and understand different points of view. This can be a challenge. In many areas I am quite opinionated, so sometimes it can be difficult to detach my opinion and hear someone else’s point of view, but it is definitely something that I always strive to do.”
Rahul Daswani, senior manager, structured finance, Worldwide Payment Solutions, Microsoft, Dubai
Doug Williamson is level verifier for the ACT’s Diploma in Treasury Management (AMCT)
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