How CA's balance sheet consumes its treasurer
Tuesday, 03 November 2009

By Tom Groenfeldt

A financial crisis quickly elevates the profile of a company's CFO and treasury operations, said Jim Hodge, treasurer at CA, the New York-based software giant. In his experience, a good CEO recognizes the importance of finance and makes the CFO a partner in moving the company forward.

Prior to joining CA, Jim worked for both IBM and AT&T. He was assistant treasurer at both corporations and played an active role in each of their financial restructurings. In addition to his work at CA, Jim is an adjunct professor in economics at NYU.

"Finance is a necessary element to running a successful company. If you do it well, you provide the CEO with the flexibility to execute the company's business plan."

As treasurer, the priorities are clear - liquidity and capital.

"Make sure you have them so the business can execute its strategy. " And it is good to have them in the correct jurisdictions so the funds can be applied without expensive tax-incurring cross-border moves, he added.

CA has a conservative treasury regime so it came through the credit crunch just fine, said Hodge.

"Our monies were carefully invested and, like many large corporations, we do significant tax planning, so we can move liquidity efficiently to where we want to use it."

Successful software companies have significant cash and most have developed sophisticated operations to manage it, he added. CA has investments spread out over a range of conservative assets and institutions. It has developed an in-house bank to control the cash and make investment decisions.

Global IT companies tend to manage their cash and investment centrally, Hodge said. In the Nineties, many large IT corporations set up subsidiaries which managed their own funds. At CA, he said, everyone in the company understands the funds belong to the shareholders. Technology and communications enable the treasury to manage the money through a global center of excellence.

As a provider of enterprise IT software, CA is both a supplier and a customer to global banks. While the company values its strong bank relationships, the company approaches its choice of banks as a business issue, said Hodge.

"We need to pick the best banks for a particular piece of business, and everybody understands that." In years past, corporations would try to persuade banks to cut them a break on one bit of business because their other relationships with the bank were highly profitable. Banks in turn would try to make lines of credit dependent on having other types of business from the corporation.

Now, while bank relationships are still highly valued, said Hodge, the tendency is for each piece of business to be negotiated and priced separately.

"That makes it easier for both sides; the concept of a loss leader is going away, partly because banks can't afford that capital anymore."

As a software company, CA uses its own technology where it can to manage its finances, just as IBM did when Hodge worked in treasury there.

"There is a clear understanding in leading technology companies that you should eat your own cooking," he said. "Technology drives progress, and the work is process, process, process. The role of technology is to provide the tools for a corporation to focus on its core business."

Looking ahead he expects greater standardization in banking practices and financial regulation rather than the variety of banking approaches and rules that a global corporation encounters today in Europe, Latin America and Asia.

"We need to move to standards because the economy is global. A lack of standards creates bottlenecks in capital flows. I expect that countries and financial institutions will work to develop a common set of rules in areas like tax, accounting and securities, and then capital will flow more efficiently."

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