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the new finance

Steve Smith, executive vice-president and chief financial officer at retail consultancy Jackman Reinvents.Robert Snider

About five years ago food service company Cara Operations Ltd. was poised to open dozens of new restaurants in Canada, when veteran chief financial officer Steve Smith intervened. His concern was that the plan didn't appear to adequately reflect market differences across Canada, such as labour costs, restaurant design and pricing.

"We assumed that what worked in Toronto would work in other parts of Canada," says Mr. Smith, who spent eight of his 22 years at Loblaw Cos. Ltd. as executive vice-president of financial control, and is now EVP and CFO at retail consultancy Jackman Reinvents.

As a result of his intervention, Cara, whose restaurant chains include Swiss Chalet and Harvey's, delayed the rollout for about 12 months, and created a more comprehensive plan that minimized the risks associated with the operation.

Mr. Smith's actions reflect a changing view of risk management, and the CFO's growing role in protecting companies against uncertainty. Once confined chiefly to traditional accounting practices when assessing risk, today's CFOs are starting to consider broader questions that encompass all aspects of company decisions, from operational to marketing and human resources.

"At Loblaw, I also ran HR, loss prevention and IT," Mr. Smith says. "I got involved in all kinds of different things, because I helped bring that different perspective."

Ian Young, chief executive officer at part-time CFO provider the CFO Centre, says that today's CFOs have to operate in an increasingly global world, where intense competition and volatile markets are a daily reality. Because of this, CFOs are spending more time than they used to on risk management issues.

"The CFO and the CEO today are working hand in hand when assessing risk," Mr. Smith says. "It used to be more of the CEO's prerogative. I do not see that now."

According to a study by membership association Financial Executives International (FEI) Canada, CFOs are moving away from the role of the head financial controller to one "where they are intimately involved in the strategic growth and risk assessment associated with competitive market growth."

"It's the CFO that has to deal with the problem years later," says Mr. Smith. "That's the reason why they have started to get into these things, to pre-emptively deal with the problem."

This broader role was reflected in the 2014 merger between the certified management (CMA) and chartered professional (CPA) accounting designations, which officially placed management accounting competencies within the scope of certified professional accountants.

The nature of risk is evolving as well. Companies, for one, are under far more public scrutiny – even an offhand remark by a low level employee, for example, can be magnified by social media, and have serious financial implications. The growing presence of activist shareholders amplifies this concern, as seen in the recent high-profile board shakeups at home improvement retailer Rona in 2013, and at Canadian Pacific Rail in 2012.

"When you're in the public eye," says Mr. Smith, "everything you do is questioned by hundreds, even thousands, of people. That can make a business very difficult to manage."

Data security is another major concern. Companies handle exponentially more information than they did even four or five years ago, and CFOs need to consider the costs, both financial and otherwise, of losing control of that information.

According to FEI Canada's study, a CFO's risk management skills have traditionally been focused on the internal operations of the business, but this is also changing. In the coming years, they will increasingly leverage these skills to help formulate long-term risk assessments that have "a three to five year external and internal risk horizon."

Mr. Smith sees today's CFO as more of a visionary that needs to take an active role in determining the direction of the company. "We are part of the management team, so we have to make the big decisions," he says. "We have to get in there and make ourselves heard."

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