The dilemma Q.What are the advantages and disadvantages of establishing a risk committee? Heather Wilson If a risk committee is created, it should ICD’s Senior Director, have a clear mandate about the work it will Policy and Research undertake and how it will communicate its findings to the entire board. The composition of the risk committee is also important. The board has the opportu- nity to appoint members to the committee with specialized knowledge and experi- ence. When searching for risk committee members, Harding looks for directors who have a solid understanding of risk frame- works (perhaps someone with an account- ing or internal audit background), or those who have a deep understanding of the risks IT IS UNDERSTANDABLE why risk is top of risk committee at Meridian Credit Union. faced by the organization through their mind for many boards. Aside from the glob- Once that’s been done, directors should be professional experience. al pandemic, we are faced with enormous able to assess whether those risks are being Risk identification, mitigation, and es- challenges, including a war in Europe, in- well monitored within the existing board tablishing the risk appetite are part of every flation, a possible recession, and supply committee structure. director’s role. According to Harding, the chain headaches. Alternatively, without A risk committee may enhance the risk environmental scan of risks should be made risk, there is no reward. Recognizing and oversight function of the board, make recom- available to all directors in their board pack- mitigating risk is an important part of run- mendations on the organization’s risk appe- ages. She notes that “this gives the board a ning an organization, and its elimination tite and tolerance, as well as bolster its ability sense of what is happening out there and should neither be expected nor attained. to handle compounding risks. Risk commit- what the trends are. At our board meetings, The creation of a risk committee is one tee members may also be able to delve more I can then provide more context about the strategy some organizations use to help mon- deeply into matters and consequently gain a topics we took deep dives on.” A heat map itor risks effectively. In Australia, for example, more complete understanding of the com- colour coded to show very high-level risks 40 per cent of respondents to a recent survey plexity of the organization’s risk environ- and their trend lines can also be a helpful indicated that they had a separate risk com- ment. Inadequate risk oversight at the board way of keeping the entire board informed mittee on their listed company boards. level may be the focus of litigation, says An- about the organization’s current risks. MY O N Before deciding to establish a risk com- drew Gray, a partner at Torys LLP in Toronto. An integrated approach to risk needs to O C mittee, an evaluation of the effectiveness of In the United States, for instance, Caremark be maintained, no matter the structure used C the current risk oversight program may be claims — named for a precedent-setting case for risk oversight. A risk committee may be N M O helpful. To determine whether a risk com- in the Delaware Court of Chancery — allege a useful addition if the risks facing the orga- mittee is necessary, organizations should that directors “have breached their duties by nization are not being well monitored by ex- Y AAR examine their risk registry — a chart or doc- failing to monitor company operations. Es- isting committees. No matter the structure N B O ument that identifies risks to the organiza- tablishing a risk committee allows a board to used, risk oversight is a full board responsi- TI TRA tion — to understand what their key threats fulfill its oversight role and mitigate litigation bility with all directors actively participating S LLU are, says Gail Harding, chair of the board’s concerns,” Gray says. in risk identification and mitigation. DJ I