How risk committees can help navigate complex business environments

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Organisations from all industries face an increasingly complicated and rapidly changing business landscape. These challenging conditions can pose various risks to businesses’ success. Risk committees play a crucial role in handling and mitigating risks – facilitating effective risk management.

Why are risk committees important?

Risk committees are responsible for offering advice about governance, risk management, internal control matters, external reporting, and audit matters. Companies prioritising risk committees are better equipped to navigate uncertainties and protect their long-term success.

Risk committee functions can be separated into six key areas:

Risk identification and assessment
Risk committees are responsible for overseeing the process of risk identification and assessment – ensuring risk assessments are in line with risk strategies in place.
Risk mitigation and response
When risks are identified, risk committees work closely with enterprise risk management (ERM) teams to support the development and implementation of risk mitigation strategies, while also assessing their efficacy. If an incident occurs, risk committees will coordinate the response and ensure timely and sufficient actions are taken.
Risk governance and oversight
Risk committees provide governance to ensure that risk management practices are aligned with the organisation's objectives and regulatory requirements. They also oversee risk management policies, procedures, and controls to safeguard compliance and minimise potential risk consequences.
Stakeholder confidence
Risk committees demonstrate a commitment to effective risk management, which can enhance stakeholder confidence. Investors, regulators, and other stakeholders view organisations with robust risk committees as proactive in managing risks, which can positively impact the organisation's status and overall performance.
Board-level reporting
Risk committees report directly to the board of directors, providing regular updates on the organisation's risk profile, emerging risks, and risk management initiatives. This allows the board to take informed decisions and provide strategic guidance to the organisation.
Risk awareness culture
Risk committees also play a critical role in promoting a risk-aware culture within an organisation. This involves educating employees about the importance of risk management, providing training on risk identification and assessment, and fostering a culture of accountability for managing risks.

Frequency of risk committee meetings

Frequency of risk committee meetings will depend on the firm, industry, and its specific needs. Other factors that might determine their occurrence are the enterprise’s risk profile, the presence of industry-specific regulations, and the availability of committee members. It is generally recommended that risk committees meet on a regular basis to successfully manage and mitigate risks.

For many organisations this will typically be on a quarterly basis. This allows for regular updates on risk management activities, review of risk assessments, and discussion of emerging risks − while allowing sufficient time for analysis and decision-making. However, more frequent meetings can be beneficial for companies in industries with evolving risks that require constant monitoring and deliberation.

Optimal risk committee composition

It is critical that businesses consider the expertise required to effectively manage their risks. The specific composition, size, and structure of risk committees will depend on each organisation's unique circumstances and risk profile. Additionally, diversity of risk committee members’ gender, ethnicity, and background should be prioritised.

Beyond risk management professionals, risk committees commonly include the following positions and skills:

Executive management
The presence of senior executives − such as the CEO, CFO, and other key leaders − ensures that risk management is aligned with the organisation's overall strategy, financials, and other objectives.
Industry experts
Including individuals with industry-specific knowledge and experience provides valuable insights into sector-specific risks and regulatory requirements. Experts can help committees further understand and address industry-specific challenges.
Legal and compliance experts
The involvement of individuals with legal and compliance expertise can help risk management practices align with applicable laws, regulations, and ethical standards.
Independent members
It is always beneficial to include independent members who are not directly involved in the day-to-day operations of the organisation. Independent members can provide objective perspectives and unbiased risk management practices.

What will the future look like?

Instilling a responsible corporate culture can engage employees and meet regulators’ objectives. Organisations that establish successful risk committees can receive numerous benefits, such as improving the board’s oversight of management and company operations. Risk committees also provide the ability to anticipate and react to events and trends that may otherwise have been inscrutable.

As both UK corporate governance regulations evolve and the risk landscape remains turbulent, the relevance of risk committees to all corporations’ short-term and long-term resilience increases. It is crucial that organisations are agile and vigilant toward all threats, The Global Risks Report helps highlight the major risk issues leaders face for 2024 and beyond.

For more information on risk committees, please reach out to your Marsh adviser.

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Article

How risk committees can help navigate complex business environments

Why are risk committees important?

Frequency of risk committee meetings

Optimal risk committee composition

What will the future look like?

How economic factors impact trade credit risks and opportunities

The trade credit claims landscape

Optimising your working capital

Managing business interruption risks amidst uncertainty

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How risk committees can help navigate complex business environments

Why are risk committees important?

Frequency of risk committee meetings

Optimal risk committee composition

What will the future look like?

How economic factors impact trade credit risks and opportunities

The trade credit claims landscape

Optimising your working capital

Managing business interruption risks amidst uncertainty