The IoD launches its (voluntary) Code of Conduct for directors

On 23 October 2024 the Institute of Directors (IoD) launched its voluntary Code of Conduct for directors (the Code), following a public consultation in June this year which we commented on here. It is aimed at directors of organisations of all sizes within the public, private and not-for-profit sectors and is intended to be an individual commitment from directors to act with integrity.

The Code received strong endorsement from most respondents to the June consultation and it has been adopted with very few changes. Written by directors for directors, it is designed to be a practical tool to help directors make better decisions and maintain public trust in business activities.

The Code

The IoD recognises that the role of today’s director is increasingly challenging, with boards having to balance the competing interests of various stakeholders whilst embedding the values of their organisation, navigating complex situations and holding themselves to high ethical standards, all of this whilst being subject to a high level of public scrutiny. As a result, the conduct of directors is increasingly a source of business and reputational risk for both organisations and individual directors.

The Code aims to support directors and businesses in building and maintaining the public’s trust by promoting greater levels of integrity on the part of directors and providing organisational leaders with a behavioural framework. Rather than adding to the wider compliance burden already placed on directors, the framework is designed to complement existing legal and regulatory obligations, as well as other professional bodies’ and organisations’ codes of conduct.

Applying the Code

This section of the Code re-emphasises that it is entirely voluntary and applies to anyone fulfilling a director or director-equivalent role. As such, given the voluntary nature of the Code, there are no formal enforcement mechanisms. If any of the recommendations made by the Code are seen as conflicting with other mandatory requirements then those other provisions should prevail. Directors should use their own judgment to apply the Code in practice and, where appropriate, seek professional advice to ensure they discharge their legal obligations.

Whilst the Code is directed at individuals, boards are encouraged to publicly commit to it. This can be evidenced by making disclosures in annual reports and on websites, communicating with employees and other stakeholders and through social media. The IoD has also developed a kitemark which can be used to publicly signify commitment to the Code.

The Principles

The Code is structured around the six "Principles of Director Conduct". There are no changes to the principles as drafted in the consultation. Each principle is underpinned by specific undertakings such as making justifiable decisions based on impartiality, consistency and merit, and aiming for long-term sustainable business success considering social and environmental impacts. The IoD considers that by applying the principles and fulfilling the relevant undertakings, directors will be well placed to achieve optimal outcomes, including reputation, trust and legitimacy.

1. Leading by example: demonstrating exemplary standards of behaviour in personal conduct and decision-making.
   
   This requires individual directors to set a high bar for their own behaviours which encourages others to do the same. The undertakings include considering the impact of the director’s behaviour on employees, fellow directors and other stakeholders.

2. Integrity: acting with honesty, adhering to strong ethical values, and doing the right thing.
   
   This requires directors to commit to consistent, positive behavioural standards. A director’s decisions should prioritise the interests of the organisation over any personal gain and balance organisational objectives with the interests of key stakeholders.

3. Transparency: communicating, acting and making decisions openly, honestly and clearly.
   
   Accurate, timely and consistent information should be provided to stakeholders, explaining the rationale behind decisions and that the directors’ decisions are assessed to be fair and reasonable. One of the key undertakings to this principle is the promotion of an open business culture which does not cover up wrong-doing or mistakes.

4. Accountability: taking personal responsibility for actions and their consequences.
   
   Being accountable means that directors are answerable for their decisions and actions when fulfilling their duties. This includes subjecting actions and decisions to scrutiny and being prepared to provide a transparent account of conduct.

5. Fairness: treating people equitably, with no discrimination or bias.
   
   This involves being inclusive and treating everyone with respect, dignity and consideration by promoting equality of opportunity in all business activities.

6. Responsible business: integrating ethical and sustainable practices into business decisions, taking into account societal and environmental impacts.
   
   The responsible business principle combines an entrepreneurial mindset with a recognition that the scope of a director’s responsibilities extends beyond their organisation and can have a broader impact on society and the planet. Directors are required to align strategic objectives with creating favourable outcomes for stakeholders over the longer term, striking a balance between financial performance and societal impact.

Future developments

The IoD intends to periodically review and update the Code. It will also develop guidance on how the Code should be applied in different everyday scenarios. The IoD will make guidance available on their website.

You can access the Code of Conduct here.  We will continue to monitor developments.

Many thanks to trainee Emily James for their help in writing this article.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2024