Risk management plays a fundamental role in corporate governance. One of the best ways to protect your organization is through a risk committee. This independent team assists the board of directors by providing risk oversight, outlining a framework to manage and mitigate risk factors in ongoing projects, and protecting the organization from legal and financial issues.
Creating a charter that clearly states the expectations for every party involved in the committee helps maintain a consistent level of conduct among risk committee members. Unsure of where to start? This article explains some general rules for how to write an effective risk committee charter.
What is a Risk Committee Charter?
A risk committee charter is a formal written document that outlines the intentions of the committee, its authoritative powers, and its overall operating structure. The charter serves as a guide that helps committee members and other stakeholders work toward the same goals while abiding by legal regulations and industry standards. The document typically includes:
- An overview of compliance activities members are expected to follow
- Meeting rules and guidelines
- An explanation of the committee’s reporting obligations
- Processes to resolve potential conflicts
If a company does not have a risk committee, a compliance committee may perform those functions.
How to Write a Risk Committee Charter
Follow these steps to draft a risk committee charter.
1. Define Objectives and Scope
Start with a mission statement or statement of purpose explaining the reasoning behind the committee’s formation. This sets the tone for the committee’s actions and how they connect to the organization’s overall goals.
This section should also specify the areas of risk under the committee’s purview, including financial risks, operational risks, compliance risks, and safety risks. List any collaborating committees, such as the safety committee or audit committee.
2. Outline Responsibilities and Authority
The most productive organizations delineate unique duties for each committee and team, and the committee charter should reflect that. The document should define the primary responsibilities in monitoring and managing risks, as well as the expected outcomes of their work. Doing so sets realistic expectations for committee members and other stakeholders by offering a written standard that defines high performance.
It also helps the company’s output stay in line with its determined risk appetite.
Examples of risk committee governance include:
- Creating risk reports
- Assessing risk management strategies
- Contributing to the development of board policies
- Ensuring compliance with various regulators
The charter also features information on the committee’s level of autonomy to make significant decisions without seeking approval from the board of directors.
3. Determine Committee Structure and Membership
Describe the overall structure of the committee, including the number of members and the qualifications and experience required. Define the roles within the committee, such as chairperson, secretary, and at-large members.
This section should also detail the appointment process for committee members and set term limits. Putting this information in the charter gives every stakeholder a solid understanding of the group hierarchy, which can streamline workflow processes.
4. Establish Meeting Procedures and Reporting Mechanisms
Outline how often committee meetings will take place and how meeting agendas will be set and distributed. Other elements of internal governance should also be noted, such as attendance requirements, meeting locations (in-person, online, or a mix of the two), how meeting minutes are recorded, and the level of access given to administrative assistants.
The charter should also specify which communication channels the risk committee will use to report to the board or other stakeholders, and how often those reports will be sent. This ensures important information is sent to the right people at the right time. It is typically the job of the chief risk officer to report to the board after each meeting.
5. Review and Approval
Last, but not least, the risk committee charter should outline how the charter will be reviewed and updated. This could be annually or as needed to reflect changes in the organization or regulations.
Once a draft is complete, send it to the board for final approval before implementation.
OnBoard Powers Effective Committees
A risk committee charter defines member responsibilities and enables more productive corporate governance. Workflow processes can be further streamlined with the use of board management software such as OnBoard.
OnBoard powers an organization’s most crucial committees. Among its many features are:
- Frictionless collaboration: Seamless sharing of documents, such as meeting agendas and committee charters, ensuring committee members are all informed and up-to-date.
- Robust security: Top-class security features like 2FA, remote wipes, and granular permissions.
- Risk-free compliance management: HIPAA- and GDPR-compliant and SOC2-certified.
OnBoard is purpose-built to help boards focus on their most important work while providing the highest level of security and compliance that progressive governance requires.
Get started with our free board meeting minutes template.
About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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