Treasury & Risk's 6th Annual Alexander Hamilton Best Practices Summit —
October 2 and 3, 2001

2001 — Overall Excellence—Microsoft Corp.

Best In Show
Microsoft Corp. wins overall excellence

Perhaps not surprisingly, technology was the common thread running through the accomplishments that won Microsoft this year's Alexander Hamilton Award for Overall Excellence in Treasury Management. Microsoft's treasury also walked off with awards in four out of the eight categories, taking the gold in cash management, financial risk management and technology and the silver in insurance.

Brent Callinicos, Microsoft's treasurer, says that a few years back, when his group looked at the rapid growth in the company's assets under management and the complexities it faced in cash management and accounting, it realized that throwing people at the problem wouldn't work. Technology was going to get us there, he says. People are not scalable, technology is.

Microsoft's treasury has a definite method for deploying its technology resources. Rather than building the systems it needs from scratch, it adapts and links together systems that it buys from vendors.

Linking Vendors' Systems

Treasury system vendors aren't offering any silver bullets, Callinicos says. So instead of seeking perfection, his group starts by looking for systems that are flexible and customizable. (He gets in an ad at this point, noting that the Microsoft stuff is the most flexible.) Then treasury's IT team uses hooks and ladders and band aids to get the system [to] speak to the other systems it needs to speak to.”

Attendees at Treasury & Risk Management's Sixth Annual Best Practices Summit were green with envy when they heard that Microsoft's treasury has a 31-person IT team. But Callinicos argues that even a treasury with just two technology people has more manpower to bring to bear on its IT needs than any vendor is likely to provide. His message to treasurers who wait for vendors to fit systems to their needs: You're going to be waiting a long time, he says. Buy from them and build.”

He cites Microsoft's move to a foreign exchange system from the Excel spreadsheets it had been using in the forex area as an example of a successful customization.

Everybody said, ‘We don't want to lose the flexibility we had in Excel,”’ Callinicos recalls. So treasury bought a foreign exchange system and then built Excel uploaders and downloaders onto it. From the traders' standpoint, they're still using Excel, he says. From treasury's perspective, the system eliminates dual entry of data and provides better data control. "We've had vendors come in who were blown away by what we've done with their systems," he adds.

Callinicos says that getting the various systems to communicate with each other is the key element for him as treasurer, because that provides the necessary overarching view of the company's activities that he needs to monitor risk exposure. If you're not looking at everything in a combined fashion, you're missing risk, he says. "And surprises are never a good thing. My goal is no surprises."

In the seven years that Callinicos has worked in Microsoft's treasury, the department has gotten more involved in working with the company's businesses, he says. "Treasury was much more of an island seven years ago. We weren't there as a partner in the business, we were taking money from the business and investing it."

Treasury still operates as the company's bank, but nowadays "we do many more things that advance Microsoft's core business goals," he says.

He cites treasury's foreign-exchange programs. Microsoft sells in dollars to its distributors, and therefore isn't subject to foreign exchange risk. But the distributors do face foreign exchange risk if their local currency is devalued. Since Microsoft depends on them to distribute its goods, treasury works with the company's subsidiaries to hedge that forex risk on behalf of the distributors. "If there is a devaluation and we make money, we distribute that money to the vendors," Callinicos says.

Marketing the Expertise

Treasury is currently considering whether it might be able to help Microsoft's businesses by using some of the $34 billion of cash on its balance sheet to provide customer financing.

Although treasury's goal traditionally has been to get the best return on cash, 'if we can find a way to offer credit to the customer, and thereby drive incremental sales, that's much better for the company," he says.

It has taken some marketing to get other parts of the company to recognize the expertise residing in treasury, he says. The flip side of the coin is that treasury has to keep on top of what's going on in the rest of the company in order to get its two cents in as new businesses are put together.

"We've got to be joined at the hip to the business, because if you learn about things after the fact, you don't get the opportunity to make it better or make it less risky," Callinicos says.

—As seen in the November 2001 issue of Treasury & Risk magazine