Advantages and Disadvantages of Risk Committee made up of NEDs

The UK Combined Code, for example, allows for risk committees to be made up of either executive or non-executive members.

Advantages of non-executive membership

1. Separation and detachment from the content being discussed is more likely to bring independent scrutiny. Sensitive issues relating to one or more areas of executive oversight can be aired without vested interests being present.

2. Non-executive directors often bring specific expertise that will be more relevant to a risk problem than more operationally-minded executive directors will have. The NEDs, being from different backgrounds, are likely to bring a range of perspectives and suggested strategies which may enrich the options open to the committee when considering specific risks.


Disadvantages of non-executive membership (advantages of executive membership)

1. Direct input and relevant information would be available from executives working directly with the products, systems and procedures being discussed if they were on the committee. Non-executives are less likely to have specialist knowledge of products, systems and procedures being discussed and will therefore be less likely to be able to comment intelligently during meetings.

2. Non-executive directors will need to report their findings to the executive board. This reporting stage slows down the process, thus requiring more time before actions can be implemented, and introducing the possibility of some misunderstanding.



***********