The Role of a Risk Management Committee Phil Kenkel

The Role of a Risk Management Committee
Phil Kenkel
Bill Fitzwater Cooperative Chair
Every financial or management crisis seems to lead to another responsibility for managers and
boards. Many large corporations have implemented or are contemplating implementing risk
management committees. The role of the risk management committee is to acknowledge and
identify all of the risks facing the organization. The committee then evaluates and prioritizes
those risks and develops a written strategy for managing the risks. This plan may involve
avoiding risks by exiting products or services, modifying activities to reduce risks, accepting
risks and preparing the consequences or sharing risks with other entities. Regardless of whether
a cooperative forms a risk management committee, risk management is a key function of the
board and management.
There are three commonsense tools for risk management: leadership, people and process. The
integrity and character of the manager and board members are of obvious importance. The board
and management team must also have the capabilities to identify and understand strategic risks.
This may require on-going education to understand changes in the business environment or
available strategies and tools. Both the board and manager must understand the risks inherent in
the cooperative’s current strategy.
The second leg of commonsense risk management is the quality of the cooperative’s employees.
Recruiting, hiring and developing high quality employees helps to ensure that processed go right.
Engaged employees are more likely to detect problems which may help prevent little risks from
becoming big risks. The quality of the employee base determines the degree to which the
manager can delegate responsibilities. Delegating the responsibility for day-to-day task frees the
manager to ponder risk management strategies. Most employees fall into three groups. The best
managers find a way to nurture the top group, develop the middle group and council or terminate
the bottom group.
The final leg of risk management is process. This includes operational and financial procedures
and policies that help to prevent or mitigate financial or physical catastrophes. In a cooperative
these include hedging and purchase strategies, accounts receivable management, fraud
prevention, stored grain management, fertilizer and pesticide spill prevention and employee
safety. When one considers notable failures in both the cooperative and corporate sector, one
cause stands out. Most “melt downs” stem from an intentional disregard or override of a risk
management system. The development of risk management processes is the first step but
ensuring that the processes are used is the key step.
Agricultural cooperatives will always operate in a risky environment. Forming a risk
management committee, developing a risk management plan and implementing risk management
controls may not guarantee your cooperative’s success. However history demonstrates that
ignoring risk management will virtually ensure its failure.