With the economic downturn and the problems that emerged lastyear in the supposedly low-risk money markets, more boards areriveting their attention on liquidity and investment policies,according to a survey from KPMG. Fifty-seven percent of directorsand finance executives say their boards have taken a closer look attreasury investment policies and procedures, while another 9% saythe board has talked about doing so. Of the companies that havereassessed treasury investing practices, 16% have altered theinvestment authority granted to treasury so that more transactionsrequire board approval.

Jim Negus, a principal in KPMG's financial risk managementpractice, says this reassessment is just part of boards' newlyawakened interest in corporate liquidity. “Most of the liquidityconversations we're having today begin with the board,” Negus says.“The board is trying to answer the question, 'Are we liquid?'”

Boards are asking for liquidity reports that look out anywherefrom six months to a year, he says. The reports take into accountsignificant cash inflows and outflows, look at what might happen tothose flows under certain scenarios, and match the information upagainst the company's credit facilities.

And once they have that information, boards want to discuss thesteps the company could take should it find it is short of cash orcredit, which could range from bolstering working capital,renegotiating credit facilities or cutting costs. “Companies areestablishing not only liquidity thresholds, but also certaincontingency plans within each one of those liquidity bands,” Negussays. “It's all in the spirit of the board saying, 'Prove to methat you're liquid.'”