Contribution of Risk Committee

Evaluate the contribution that a risk committee made up of non-executive directors could make to shareholders’ confidence in the management of an organistion


Risk committees are considered best practice by most corporate governance regimes around the world for a number of reasons. A risk committee made up of non-executive directors could provide an independent viewpoint on the company’s overall response to risk, and to challenge the CEO’s attitude. A risk committee can help increase the confidence in a number of ways:


Determining overall exposure to risk
The committee can pressure the board to determine what constitute acceptable level of risk, bearing in mind the likelihood and the risks materialising and the company’s ability to reduce the incidence and impact on the business.

Monitoring the overall exposure to risk
Once the board defined acceptable risk levels, the committee should monitor whether the company is remaining within these levels and whether earnings are sufficient given the levels of risks that are being borne.

Reviewing reports on key risks
There should be a regular system of reports to the risk management committee covering areas known to be of high risk, also one-off reports covering conditions and events likely to arise in the near future. This should facilitate monitoring of risk.

Monitoring the effectiveness of the risk management systems
The committee should monitor the effectiveness of the risk management systems, focusing particularly on effective management attitudes towards risks and the overall control environment and culture. A risk committee can judge whether there is an emphasis on effective management or whether insufficient attention is being given to risk management due to the pursuit of higher returns.



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