What could a Code of Conduct for business directors include?

The Institute of Directors (IoD) has published its consultation on a voluntary Code of Conduct for directors of UK businesses. This follows recent corporate scandals involving the role of directors, such as the collapse of BHS and the construction company, Carillion.

The Code will provide a framework for directors to make responsible, informed decisions, particularly in complex circumstances. It is not to add an additional burden of compliance but instead is to act as a guide to help directors make the best decisions for the business and act in its best interests.

Directors’ duties are currently governed under the Companies Act 2006; however, the IoD notes that the lack of a Code of Conduct is a significant gap in the UK’s corporate governance framework.

What are the Code’s key principles?

The Code is based on six key ‘Principles of Director Conduct’. These are to help directors in the decision-making processes and ensure that they prioritise the best interests of their organisations and stakeholders. The six principles are:

• Leading by example – directors must show exemplary standards of behaviour in their personal conduct and decision-making. This includes challenging poor behaviour.
• Integrity – directors should act with honesty, adhering to strong ethical values and relevant laws and regulations. The focus here is on “doing the right thing”.
• Transparency – communicating, acting and making decisions openly, honestly and clearly.
• Accountability – directors should take personal responsibility for their actions and the consequences that ensue.
• Fairness – treating people without discrimination or bias. Decisions should be based on impartiality, consistency and merit.
• Responsible business – give consideration to the integration of ethical and sustainable practices in business decisions. This will involve taking into account societal and environmental impacts.

Responding to the consultation

The consultation is seeking responses to the following questions:

• Are there any additional matters that the Code should address?
• How can awareness of the Code be encouraged among directors and the wider public?
• Should it be public knowledge that a company director has adopted the Code?
• Should the government, regulators or professional bodies have a role in encouraging adoption of the Code?
• Would existing directors adopt the principles set out in the Code?

Whilst the Code will be voluntary, the IoD believes that it will be more effective in promoting accountability among directors and will also instil greater confidence with a company’s stakeholders.

The consultation closes on 16 August 2024.

If you have questions about the IoD’s proposals, please contact Aman Sehgal.