The Institute of Directors (“IoD”) has launched a consultation on a proposed new voluntary Code of Conduct for Directors. It is the result of a Commission set up last year which had the aim of developing a “credible” code to be signed up to by board members from all types of corporate entities, signalling “their willingness to apply high ethical and behavioural standards in their governance and leadership activities.”

The Code is structured around six key ‘Principles’, each of which is underpinned by a number of specific ‘Undertakings’. As the consultation explains, “by applying the Principles and fulfilling the Undertakings, directors are well placed to achieve the positive Outcomes” set out in the document.

The Principles are as follows:

1. Leading by example. The consultation explains that “leading by example is about setting a high bar in terms of your own behaviours, which in turn encourages others to follow suit. It involves demonstrating the values, ethics and commitments which are expected by your organisation in all that you do.”
2. Integrity. According to the consultation, this is about “consistently doing what is right. You should abide with relevant laws and regulations, act in good faith and uphold high ethical standards. Your decisions should prioritise the interests of the organisation over personal gain, and balance organisational objectives with the interests of key stakeholders.”
3. Transparency. Directors under the Code are expected to be “open about [their] decisions and actions. [Transparency] entails providing accurate, timely and consistent information to stakeholders, demonstrating that decisions are fair and reasonable.” This includes, for example, directors being open and transparent to the rest of the board and relevant stakeholders “in respect of anything that might be perceived as affecting [their] objectivity”.
4. Accountability. This means that “you are answerable for the decisions and actions you take in fulfilling your duties as a director. This includes subjecting your actions and decisions to scrutiny and being prepared to provide an honest and transparent account of your conduct.” Examples provided in the consultation include: being open to feedback; overseeing and holding management to account; seeking independent advice on matters of concern at an early stage; and directors declining to serve on a board if on reflection they do not have the requisite knowledge and skills.
5. Fairness. The Code explains that “fairness encompasses making decisions impartially, consistently and based on merit, while providing justification for your decisions. It involves you being inclusive and treating everyone with respect, dignity and consideration. Fairness is essential for nurturing a culture where diversity is welcomed, and all individuals have the chance to excel and realise their potential.”
6. Responsible business. Finally, directors under the proposed Code will be expected to integrate “ethical and sustainable practices into business decision-making, taking into account societal and environmental impacts”. It requires directors to “align strategic objectives with creating favourable outcomes for stakeholders over the longer term. This includes focusing on sustainable growth and striking a balance between financial performance and societal impact.”

Commenting on the launch of the consultation, the Chair of the IoD Code of Conduct Commission, Lord McNicol, and the Director General of the IoD, Jonathan Geldart, said:

 “We can be rightly proud of UK business organisations much of the time. However, on occasion, business decision makers fall short of what society expects. Those at the top may lose touch with what really matters – namely the need to demonstrate exemplary values and integrity in both their business decisions and their personal behaviours. As a result, we have recently observed scandals and controversies which have exerted a negative effect on the esteem in which business is held. In the absence of public trust, businesses may find that their freedom to forge their own destiny is increasingly called into question.

The purpose of this Code is to help UK business win back that trust by embedding the values that are already adopted as a matter of course by most responsible business leaders. Written by directors for directors, it offers a roadmap that can help individual directors make the right decisions for themselves and their organisations, often in the face of complex challenges and trade-offs. The Code represents a voluntary commitment and is not intended to hold back directors or create a new burden of compliance. Most of the undertakings contained within the Code are matters of common sense. However, at crucial moments, when key decisions have to be made, the Code may serve as a useful tool that directors can refer to when asking themselves the question: what would a responsible director do in this situation?”

The IoD invites views from the business community as well as the general public. In particular, it asks if the Code should address any further matters, whether directors should disclose their adoption of the Code, whether there is a role for government, regulators, or professional bodies in encouraging adoption of the Code, and whether those respondents who are directors would commit themselves to the Code.

The consultation is open until 16 August 2024 and can be viewed in full here.