A game of Rock-Paper-Scissors

Apr 15th 2015 |

Taking the long view isn’t easy at the best of times. After all, treasurers must always take the short view because of the very nature of the game. Cash balances, the transparency of cash and the availability of cash are the critical punctuation marks of every day.

But treasurers cannot ignore the long view. After all, today’s cash was yesterday’s receivables. Tomorrow’s cash is last year’s capital investment. The time span might be 30 days or 30 years but the principles remain.

Seeing the short and the long at the same time requires a different focus and different lenses. Big data can help. So can technology. Even regulation may help in so far as it can provide direction about the parameters involved. But perhaps the biggest challenge facing the treasurer these days is best illustrated by the playground game, which originated in China, often called ‘rock-paper-scissors’.

In this game, usually played in pairs, players form one of three shapes with an outstretched hand. Rock beats scissors, scissors beat paper and paper beats rock. If you both make the same shape, the game is a tie. How to win? The treasurer could use scissors to cut through the endless paper trail. Hands are not only for manual processing, though, there’s the element of how goods and their financing fit into the supply chain. And the treasury can also be the rock which is the foundation for business processes.

Wrapped in paper

In the end the treasurer must wrap things up in paper. That is the purpose of statutory accounts. The IASB has been spending a lot of time in reaching out to investors, but there are very few of those compared to the number of commercial counterparties.

There are not many banks in the world and there are fewer governments and regulators. Yet many businesses have tens, or even hundreds of thousands of buyers and suppliers. For sure, rock-paper-scissors is only played between two people and treasurers have to have multiple games on the go at the same time.

And big numbers lend themselves to the new buzz of big data. But that in itself is not the start of big thinking. Lots of bricks and pots of paint do not make an architectural monument, neither do they (always) make a work of art. That requires thought, proportion and a sense of how the design will work. Would the Sistine Chapel look better if Michelangelo had had an extra few gigabytes?

So treasurers have to go back to that Chinese game. Purist strategists say the only way to win is for the opponent not to be random, and if you exploit the nonrandom nature of opponents it is possible to gain a real advantage.

Regulation can be both random, and non-random. It can defeat the treasurer by wrapping in paper. But while it presents many challenges there may also be opportunities. There is a curious dividing line between what should be disclosed (everything) and what might be comprehensible (almost nothing if the lawyers and auditors get close to it).

Regulation and freedom

There will always be an opposition between regulation – a good thing because everybody needs rules – and freedom – because that’s where innovation lies. The big difference is between supportive and cooperative interaction and imposition. The Swift/ICC initiative on Bank Payment Obligations, the Single Euro Payments Area and electronic bank account management could help because they are examples of how regulation can respond to needs.

Government interference won’t help but it’s always there. Meanwhile, back in the real world, treasurers must take the long view and keep playing the game.