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Does your board need a risk committee? The benefits can be compelling, but creating a board-level risk committee can itself be risky business. Certain factors deserve particular attention in weighing whether to take such a step.

Article Excerpt
IN THE CURRENT economic and political environment, "risk management" is a concept commanding the attention of executives, boards, and regulators alike. Corporations of all sizes are increasingly focusing on the systemic risks that threaten their long-term health and profitability. One important question for companies to address is what the role of the board should be in overseeing a company's risk management efforts. Specifically, should a board create a dedicated risk committee to assist the company in developing a process to identify, assess, and manage its most critical risks?

The benefits of a successful risk committee are obvious: improved board oversight of management and of company operations; an ability to anticipate and react to events and trends that might otherwise be inscrutable; and, not least, the projection of a sober and responsible corporate culture that will impress employees and regulators alike.

But before rushing to establish a risk committee, it is worth noting that the creation of such a committee can itself create risk. The board, in delegating responsibility of monitoring risk to the new committee, will need to...

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