Shell - learning from mistakes

The case for setting up a centralized operation for treasury activities is certainly attractive. Benefits include the pooling of expertise in one location, resulting in better control over information and capital flows, improved risk and liquidity management, and a reduction in funding, foreign exchange and transactional costs. For multinational companies, the benefits and savings can be significant, but there are limits. Asia, with its plethora of financial standards, regulations, clearing systems, time zones and currencies, just to name a few, can be a bewildering region to manage. Often the answer points to a regional treasury centre set in Asia itself.

In the case of Shell, a treasury centre was set up in London in December 1997 for the purpose of centralizing the treasury activities of the group's European entities. The following year, a decision was made to run treasury activities for Shell's Asian entities also from this location, but this wasn't good enough. "That was really valid on a global scale," says Jan Hussmann, general manager, Shell Treasury Center East (STCE), referring to the initial global treasury structure. "We started with London with the plan to centralize all treasury activities, short-term money market, foreign exchange and risk management. We tried to service Asia from London for a year or so, and quite frankly, we failed. The reason is that, coming from a very decentralized structure, we had a lot of independent operating companies and there were a lot of things that were simply not possible due to time zone differences. So the solution was to have a treasury centre in the region, servicing the region," he concludes.