Every new product or service your organization implements introduces risk. While risk isn’t always a bad thing, there needs to be a plan in place to mitigate the downsides of riskier decisions. Project managers and their teams are often directly involved in risk management, with the board of directors providing oversight and overarching governance, risk, and compliance (GRC) frameworks.
But if you are developing multiple risky projects at once or simply want to protect your assets more thoroughly, then the creation of a risk committee becomes a more than sensible tool of corporate governance.
In this article, we will define the role of a risk committee and how one can help your organization.
What is a Risk Committee?
A risk committee is an independent panel or team put together by the board of directors to assist in overseeing the organization’s risk strategy and creating an effective risk management framework that guards against major losses.
A risk committee often collaborates with the organization’s corporate governance and audit committees to identify and assess operational and reputational risks for the corporation.
There is no set number of members that a risk committee must have, but each member should bring a relevant level of experience and expertise regarding the organization’s risk profile and risk management aims. The committee is led by the chief risk officer, who spearheads risk management procedures and reports to the CEO or board members.
Smaller corporations may choose not to establish a separate risk committee, leaving risk-related responsibilities in the hands of the audit or compliance committee. But organizations with greater resources tend to feel the benefits of a full-time risk committee in their internal risk management culture. Risk committee actions must always be in accordance with the risk committee charter and other industry-wide standards.
Risk Committee Roles and Responsibilities
The best approach for risk governance in each organization is affected by variable factors such as the size of the company, the levels of risks, stakeholder expectations, regulations, and resources. The following are common risk committee roles and responsibilities.
1. Risk Oversight
A risk committee’s efforts should ultimately center on the group’s fundamental purpose: providing an independent layer of risk oversight to the organization’s actions.
Risk oversight refers to the overall evaluation process for a company’s risk management tools, rules, and risk culture. Oversight also includes regular reviews to identify significant or emerging risks on behalf of the board to provide feedback and recommendations on how to minimize their potential impact and make targeted improvements. The duties of each risk committee member should be further explained in the committee charter.
Risk oversight is a hugely important aspect of corporate governance. It holds management accountable for their actions and ensures that the organization is utilizing best practices to achieve its goals responsibly. Once you have a broader understanding of the risks surrounding your business, the committee can work with management to strategize from a proactive position rather than reacting to sudden circumstances.
2. Setting Risk Appetite and Strategy
Another crucial objective of the risk committee is to determine the risk appetite of the organization. Risk appetite describes the amount of risk an organization is capable of taking on with their current resources and how much risk it is willing to take on for new projects or developments. Leadership can use those metrics to judge organizational performance and craft a strategy around their risk tolerance level.
3. Reviewing Risk Policies and Controls
The risk committee oversees the implementation of the organization’s risk management policies and controls. This includes ensuring risk policies align with the organization’s overall objectives, mission, and values, and regularly reviewing and updating policies to reflect changes in the business environment, regulations, and industry standards.
4. Reporting and Communication
A risk committee must review the company’s internal reporting mechanisms and how risk-related information is communicated to personnel throughout the organization. Open lines of communication are vital to high-functioning workflows and a positive workplace culture. If there are communication breakdowns, the committee should investigate the root cause of the problem and identify ways to improve the situation going forward.
5. Compliance and Regulatory Adherence
Finally, the risk committee is responsible for finding ways to improve compliance techniques and maintaining awareness of any regulatory updates or changes to industry standards that may affect the organization. This may include collaborating with the compliance committee or safety committee, and adding risk updates to the compliance committee agenda when relevant.
- Legal fines or other financial penalties
- Lawsuits from customers and/or employees
- Reputational damage
- Lack of trust from customers or your workforce
The risk committee should conduct meetings on a regular basis where they examine data, project trends, and create risk reports.
OnBoard Powers Effective Committees
The impact of an effective risk committee can be felt throughout every level of your organization. By setting risk strategies, reviewing policies, and ensuring adherence to current regulations, the committee provides vital corporate governance and protection from legal and financial issues.
Risk committee members must regularly conduct productive meetings, and OnBoard provides an intuitive platform to increase organizational decision-making. Our board management software helps organizations make informed decisions with several features such as a user-friendly design, data visualization, real-time meeting analytics, a secure messaging system, and Zoom/Microsoft Teams integration.
OnBoard is used in many industries to protect high-level data and increase the efficiency of meetings. Download our free board meeting minutes template for your next risk committee meeting.
About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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