Contact
Institute of Directors consults on a code of conduct for directors
The Institute of Directors ("IoD") has launched a consultation on a new code of conduct for directors that is intended to help directors make better business decisions and promote high standards of integrity and professional ethics (the "Proposed Code").
If adopted, directors of all companies, whether public or private and regardless of sector and size, will be free to choose to adopt voluntarily the principles of the Proposed Code with a view to demonstrating their willingness to apply high ethical and behavioural standards in their roles as business leaders.
Background
The Proposed Code builds on the policy paper published by the IoD on 20 June 2022 (the "IoD Policy Paper"), which called for the government to commission a high-level working group to draft a voluntary code of conduct for directors. The IoD Policy Paper was published in the wake of a number of corporate scandals (including Carillion, P&O Ferries and BHS) which led to a demand for greater accountability for businesses.
The IoD was concerned that this heightened demand for accountability would force the government to react by imposing prescriptive regulatory obligations on businesses and their boards. There was also a concern that a heavily regulated regime for directors may have the effect of creating a counterproductive focus on compliance which would detract from boards' abilities to be strategic and innovative.
The Proposed Code instead presents an alternative approach. It is intended to serve as a practical tool for directors, to help them make the right decisions for themselves and for their organisations, even in the face of complex challenges and trade-offs.
The Proposed Code
The Proposed Code is structured around six key principles of director conduct (each a "Principle").
- Principle 1: Leading by example. Demonstrating exemplary standards of behaviour in personal conduct and decision-making.
- Principle 2: Integrity. Acting with honesty, adhering to strong ethical values, and doing the right thing.
- Principle 3: Transparency. Communicating, acting and making decisions openly, honestly and clearly.
- Principle 4: Accountability. Taking personal responsibility for actions and their consequences.
- Principle 5: Fairness. Treating people equitably, without discrimination or bias.
- Principle 6: Responsible business. Integrating ethical and sustainable practices into business decisions, taking into account societal and environmental impacts.
Each Principle is underpinned by specific 'undertakings' to illustrate how directors can apply the Principles in order to achieve the identified expected positive 'outcomes', for example gaining respect and trust as an authentic leader, building confidence and loyalty and promoting positive relationships and effective collaboration with stakeholders.
Next steps
The consultation invites feedback from the business community and the general public and closes on 16 August 2024.
Guidance containing examples of how the Proposed Code can be applied in various specific scenarios is expected to be annexed to the final version of the Proposed Code. The guidance will be published following approval of the final version of the Proposed Code.
The full text of the Proposed Code is set out in the consultation paper published by the IoD on 6 June 2024.
If you have any questions about the proposals set out in the consultation paper, the Proposed Code and how they may affect you, please feel free to get in touch with a member of our team at: SHCapitalMarkets@shlegal.com.
© Stephenson Harwood LLP 2023. Information contained on this page is current as at the date of first publication and is for general information only. It is not intended to provide legal advice.