The National Association of Corporate Directors, the authority on boardroom practices representing more than 23,000 directors, in partnership with Marsh McLennan, have published their Risk Committee Blueprint as part of the NACD Future of the American Board initiative.
The Risk Committee Working Group is a panel of corporate board leaders from NACD-affiliated organizations, as well as senior leaders from Marsh McLennan, who developed the Blueprint as both a call to action for boards to elevate their risk oversight and as an assessment tool for boards, with or without risk committees to help them execute on expanded risk oversight responsibilities.
Linda R. Gooden, a Risk Committee Working Group participant; Director at GM, Home Depot, ADP, and others; and Former Lockheed Martin Executive VP said, “Enterprises today face an increasingly complex risk environment, a demanding risk agenda, and rising stakeholder expectations. Crises—including the pandemic, supply chain disruptions, geopolitical turmoil, and financial distress—have combined and reinforced each other, stressing the reality that strong risk oversight is now a vital board function at all organizations.”
The working group recommends that directors consider these four critical areas that will help boards frame and elevate their execution of risk governance and oversight to meet these challenges, the first is oversight structure. For this, boards must ensure that there are clear committee charters that define risk oversight responsibilities, roles, and the management structure and processes to support those responsibilities, whether there is a dedicated risk committee or not.
Next comes expertise and board composition, some boards may need to increase board education, the use of external advisors, or a refresh of the board composition to meet an array of risk demands and risk management. A focus on reporting and communications will help to improve risk reporting starting with clarity on the board’s risk responsibilities, as this guides the necessary content, structure, and cadence of information flow. Finally, despite crowded board agendas, directors should ensure that committee calendars and agendas allow time for discussions on emerging and evolving risks and impacts.
Reid Sawyer, Managing Director and Head of the Emerging Risk Practice at Marsh Advisory, and a member of the Risk Committee Working Group commented, “In our work with clients, we see boards playing an increasingly vital role in helping their organizations maneuver through complexity by enhancing and strengthening their risk oversight. The Blueprint is an invaluable tool for directors to help them assess if their board is ready to execute on their expanded risk oversight responsibilities in this unpredictable environment.”
Only 8% of Russell 3000 companies have a dedicated board risk committee. As described in the Blueprint, for some organizations a dedicated risk committee can enable a substantive focus on risk and risk analysis, including emerging and non-defined risks, optimizing risk management and its link to strategy. The risk committee can also serve as an aggregator of risks overseen by the different board committees to help ensure all risks receive thorough oversight.
Peter Gleason, President and CEO of NACD concluded, “Our goal with the Blueprint is to help directors develop a deeper and fuller understanding of their companies’ risk management, especially as board oversight and responsibilities in this area expand, and be prepared to take action in a crisis. Each organization must consider its own maturity, ongoing strategies, and particular pressures, and should use the NACD guidance as a starting point from which to develop a plan that best fits their needs.”
