How do you communicate and collaborate with other stakeholders on hedging decisions and outcomes?

To effectively communicate and collaborate with stakeholders on hedging decisions and outcomes, organizations should: Identify and understand stakeholders' needs and interests. Define clear roles and responsibilities for each stakeholder. Select appropriate hedging techniques and tools. Foster open communication and transparency. Encourage proactive collaboration among stakeholders. Seek feedback and continuously improve the hedging strategy. Adapt the hedging strategy to changing market conditions. It is important to raise that hedging cost is an insurance, not a barrier, to improve P&L; this cost save the great value of companies, as if you pay car insurance, if you did not use it, so do not fail guilty that you insures ;)

Ensuring effective communication and collaboration with various stakeholders is paramount when it comes to hedging decisions and their outcomes. It's about fostering an environment where perspectives are shared, concerns are addressed, and objectives are aligned. Whether it's engaging with finance teams to analyze risks or liaising with operational departments to understand market dynamics, the key lies in transparent dialogue and mutual understanding. By actively listening to inputs from all parties involved and leveraging collective expertise, we can navigate complexities and optimize hedging strategies for the best possible outcomes.

In my approach to hedging decisions, I prioritize open dialogue and collaboration with stakeholders. I start by understanding their risk preferences and goals, tailoring discussions to their needs. Together, we explore various hedging strategies, discussing potential outcomes and associated risks candidly. I value their input and feedback, ensuring decisions reflect our collective understanding and objectives. Throughout the process, I maintain frequent communication, keeping stakeholders informed of market dynamics and hedging performance.

To effectively communicate and collaborate on hedging decisions, start with a clear treasury policy that outlines the roles and responsibilities related to hedging. For example, designate who sets hedging objectives, who executes transactions, who monitors performance, who handles reporting, and who provides feedback. Ensure these roles are documented in your Authorized Representative List, which is communicated to your banking partners. This list is crucial because banks will only process transactions if the individuals involved are officially listed as authorized dealers. By defining these roles and maintaining clear communication, you can avoid conflicts, ensure separation of duties, streamline processes, and enhance overall efficiency.

When implementing hedging strategies, adhere to your company's treasury policy, which dictates the use of specific hedging instruments and techniques. For instance, if your policy restricts the use of derivatives for speculative purposes, focus on compliant tools like forward contracts or interest rate swaps designed to manage financial risk without exceeding policy boundaries. Choose transparent, standardized instruments that facilitate clear communication and alignment with stakeholders.

It is important to also establish the best method/mode of communicating. You also want the communication to be simple to read and understand, suitable for the intended audience, timely and consistent in terms of frequency of generation/delivery.

Bigger organisation have a treasury controller. This person does not execute the hedging strategy (treasury front office does that) but controls what has been done, if it matches with risk policies. Also the treasury controller knows about the accounting of the derivatives/hedges to help accounting correctly book and understand the trades. Very helpfull person in a bigger treasury!

Hedging should not be over complicated because it is already difficult enough to understand for non finance people. At its heart is good recognition of what risks exist and the impact these can realistically have on the bottom line. This is followed by assessing how much hedging cost ( think of it like insurance) the bottom line should suffer to mitigate such risks. Communicate to different levels of management and stakeholders the same way as other cost/ benefit decisions. So, in essence, keep it simple in communications terms and leave the complicity for the background experts

The first question that should be asked is 'What are we trying to achieve?'. Some organisations will want to remove as much risk as possible, some a proportion, some little or none. That decision ultimately is decided at a corporate level, who in turn are guided by the company's stakeholders, by the wider industry they work in, the company's capabilities, and the impact the respective risk could have on the company's Balance Sheet. This internal culture, directed at a corporate level, will decide not only 'what the company wants to achieve' in a hedging policy, but whether those executing use specific pre-prescribed tools to enact said policy, or assign specialists within a risk framework to mitigate in the deemed best possible manner.