The increasingly complex and dynamic risk environment – and the fusion of risks unfolding simultaneously – requires a more holistic approach to risk management and oversight. Many of the risks companies must address today are interrelated. While many companies historically managed risk in siloes, that approach is no longer viable and poses its own risks. Investors, regulators, ESG rating firms, and other stakeholders continue to demand higher-quality disclosures about risks and how boards and their committees oversee them.
Many boards are reassessing the risks assigned to each standing committee. In the process, they are often assigning multiple standing committees oversight responsibility for different aspects of a particular category of risk. For example, the risk, nomination, compensation, and audit committees may each have some overlapping oversight responsibility for climate, Human Capital Management (HCM), and other ESG risks. If cyber security and data governance oversight reside in (say) a technology committee, the audit committee may also have certain oversight responsibilities (say, over internal and disclosure controls and procedures).
Given these overlapping committee risk oversight responsibilities, boards should encourage more effective information sharing and coordination among committees by:
- Identifying areas where committee oversight responsibilities may overlap and developing a process/protocol/policy for frequent communication and discussion of committee activities in these areas.
- Maintaining overlapping committee memberships or informal cross-attendance at committee meetings.
- Conducting joint committee meetings when an issue of strategic importance to multiple committees is on the agenda.
- Holding periodic meetings of committee chairs to discuss oversight activities.
- Insisting on focused, appropriately detailed, and robust committee reports to the full board.
Essential to effectively managing a company’s risks is having an up-to-date inventory of risks and maintaining critical alignments – of strategy, goals, risks, internal controls, incentives, and performance metrics. The full board and each standing committee have a role to play in helping to ensure that management’s strategy, goals, objectives, and incentives are properly aligned, performance is rigorously monitored, and that the culture the company has is the one it desires.
