Risks have never been more widespread, serious, and damaging to organizations than they are today. From supply chain problems and vendor security vulnerabilities to trade instabilities and natural disasters, the scope and financial impact of risks continues to grow. To successfully predict and mitigate enterprise risks, some organizations have formed a risk management committee. Should your business follow suit?
What Is a Risk Management Committee for Enterprise Organizations?
A risk committee is a group of executives tasked with overseeing, coordinating, enforcing, and reviewing every aspect of your organization’s risk management activities. The overall board still makes strategy decisions for the company, but the risk management committee is in charge of ensuring that risk-related governance and compliance actions are carried out effectively, efficiently, and correctly.
Not all organizations have a dedicated risk committee. Some opt to assign one or two board members to take care of specific aspects of risk management. For example, the CIO or CISO may oversee cybersecurity risk assessments. In healthcare organizations, a compliance committee may handle risk management for HIPAA compliance.
What Is the Role of a Risk Management Committee?
The purpose of a risk committee is to support the board and help your organization make strategic, timely, and accurate risk decisions. Professionals with experience in cybersecurity, risk oversight, regulatory compliance, and risk-adjacent policies can protect your organization, improve ROI, and create a culture of compliance.
1. Risk Appetite and Risk Mitigation
The risk committee works closely with the board to determine your organization’s risk appetite, or overall approach to risk levels. Once a decision is made, the committee can develop solutions for mitigating, transferring, or lowering risk to acceptable levels.
2. Risk Assessments
Risk management involves carrying out in-depth risk assessments. The risk committee oversees:
- Gap analyses
- Initial risk assessments
- Follow-up evaluations
- Internal audits and independent assessments
In high-risk industries or critical areas of business, such as data security, it’s often necessary to implement a program of continuous monitoring for risks.
3. Risk Oversight
One of the primary roles of a risk management committee is to oversee the success of your company’s GRC, ERM, or IRM framework. This usually involves tracking compliance metrics and analyzing internal trends.
Effective management holds stakeholders accountable, from C-suite executives to lower-level employees. If workers are slow to follow through, it’s the job of the risk committee to figure out why and design solutions.
4. Creating, Reviewing, and Updating Risk Policies
A risk committee usually does the heavy lifting where risk policies and controls are concerned. At minimum, the committee offers professional recommendations to the larger board for governance decisions.
More commonly, the committee makes many risk-related decisions itself. This allows for more flexibility in quickly adapting to emerging threats. Of course, it’s still necessary to make sure risk decisions harmonize with your organization’s overarching strategy and goals.
5. Communications and Training
A risk policy is only effective if employees understand it and have access to it. The risk committee must develop appropriate training programs and practical guidelines that explain what to do, why, when, and how.
6. Regulatory Compliance
Government regulations and risk management are closely intertwined. Healthcare, pharmaceutical, insurance, banking, investment, and manufacturing all require enterprises to create comprehensive risk management programs with clearly defined roles and responsibilities.
Why Is a Risk Management Committee Important?
Not all board members have a strong background in risk management, so a strictly democratic decision-making process can lead to less than optimal results. The disastrous failures at Volkswagen, Wells-Fargo, Target, and T-Mobile are all related to serious errors in risk management.
A recent example is Newark Airport. A contributing factor to dangerous communication blackouts was a decision to move operations to a secondary site without proper infrastructure.
Union documents said the initial risk assessment used “grossly inaccurate data and projections.” Better risk assessments could have prevented or mitigated the situation.
Who Should Be in a Risk Management Committee?
The ideal composition of a risk committee depends on regulatory requirements and the size of your operations. Companies usually pull from board members, but the committee needs independence.
The head of the risk management committee is the Chief Risk Officer. This position should be filled by an independent executive, not a board member.
Here are a few characteristics to look for:
- Experience: It’s good to have a wide range of experience to tackle your organization’s unique risk profile, including regulatory concerns, ESG initiatives, and cybersecurity.
- Background in risk management: The senior members of the risk committee should have extensive expertise in risk assessments, risk mitigation, and governance.
- Alignment with organizational priorities: All members of the risk committee should understand your products, objectives, company culture, and operations intimately.
There are no restrictions on the number of executives that can serve on a risk management committee, but the size should be appropriate to your operations. Strike a balance between responsibilities and responsiveness. It’s not good for committee members to juggle too many roles, but you also don’t want an unwieldy body that takes forever to reach consensus.
Do Your Operations Require a Risk Management Committee?
Audit firm Deloitte found that only 1 in 5 organizations has a dedicated risk management committee. Many boards don’t see a pressing need to alter their enterprise risk management structure. What about you?
Organizational Risk Profile
As cyber threats and consumer-related risks grow, so do the benefits of a qualified risk committee. Today’s investors pay close attention to how well companies manage their risk.
Effectiveness of Current Committee Makeup
Your current results are a good indicator of whether you need a dedicated risk committee:
- Does your current board setup lead to good risk decisions?
- Are there information-sharing issues?
- Do your compliance or audit committees have risk management professionals on them?
- Are important risks getting overlooked or poorly managed?
- How quickly do you typically respond to emerging threats?
A risk committee provides a unified approach to risk management. This can prevent data silos and keep vulnerabilities from flying under the radar.
The Ideal Tool for Risk Management Decisions
Whether your organization requires an independent risk management committee or just a risk-conscious board, you can improve your results with an automated compliance platform like Compyl. Track risk metrics, integrate data, and automate document workflows seamlessly. Contact us to learn more about state-of-the-art risk management solutions.
