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The IoD’s Code of Conduct for directors: a code for better business?

Insight

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Introduction

On 6 June 2024, the Institute of Directors (the IoD) launched a public consultation on a proposed voluntary Code of Conduct for directors of all types of corporate entity (including private, public and not-for-profit entities) (the Code). The public consultation will run until the middle of August 2024, with the IoD seeking views from the business community and the wider public on the Code.  

Purpose

The Code has been developed for the IoD by a Commission comprised of leading figures from the world of business and public affairs in the wake of various corporate scandals and controversies, including at the Post Office, Carillion and BHS. The genesis of the Code is a sense that public trust in UK businesses has been negatively affected by these events, where the behaviour of certain directors has been shown to have fallen short of the standards expected by stakeholders and the wider public.

One aim of the Code is to provide a practical “toolkit” for directors that can support their decision-making process when faced with complex situations. In particular, we can see the Code being a useful resource for individuals taking on a director role for the first time, providing more practical guidance on how to perform and discharge the directors’ duties that are set out in legislation. The Code will also be a tool to enhance regular training and evaluation sessions for all Board members.

Although proposed to be voluntary, the Code could also play a role in enabling shareholders, employees or other stakeholders to hold directors to account and call out behaviour that does not reflect the principles of the Code, thereby encouraging a “top down” approach to creating and maintaining a positive culture across a range of businesses.  

Whilst the Code should not contain any surprises for more experienced directors, its simplicity reflects the core principles of good governance and therefore helps to provide a clarity of thought process for directors when considering both routine and more complex or sensitive issues at Board level.   

The Code framework

The Code is structured around six key principles of “Director Conduct” (the Principles), which are inspired by the Nolan Principles (also known as the Seven Principles of Public Life, first published in 1995 by the Committee on Standards in Public Life). Each Principle is underpinned by a number of undertakings. This model gives directors the scope to apply the Principles and fulfil the undertakings to achieve positive outcomes both for themselves, their workplace culture and their organisations. 

The Principles

  1. Leading by example: Demonstrating exemplary standards of behaviour in personal conduct and decision-making.
  2. Integrity: Acting with honesty, adhering to strong ethical values, and doing the right thing.
  3. Transparency: Communicating, acting and making decisions openly, honestly and clearly.
  4. Accountability: Taking personal responsibility for actions and their consequences.
  5. Fairness: Treating people equitably, without discrimination or bias.
  6. Responsible business: Integrating ethical and sustainable practices into business decisions, taking into account societal and environmental impacts.

Similarities to other governance codes

As the Principles are based on the Nolan Principles, the Code echoes and reflects certain provisions of other governance codes already in place in the UK. This includes the UK Corporate Governance Code for companies with a premium listing on the London Stock Exchange, the Wates Principles for large private companies, the UK Sport/Sport England Code for Sports Governance for sports organisations in receipt of public funding, and the B Corp Legal Requirement for entities wishing to become certified B Corps.

Whilst the above codes are applicable to certain categories of UK businesses, the Code looks to be a document that all directors can turn to, regardless of the type of entity they serve, and to be considered alongside their statutory directors’ duties under the Companies Act 2006.

The Principles enhance the statutory duties and in particular place an emphasis on the importance of:

  • An organisation’s values and those values being upheld by its directors,
  • Managing conflicts of interest and placing the interests of an organisation and its stakeholders above personal interests,
  • Constructive challenge, “speak up” mechanisms, and taking collective responsibility for agreed decisions,
  • Engaging transparently (as far as possible) with stakeholders and promoting an open and inclusive culture that does not cover up mistakes,
  • Seeking independent advice where necessary, and at an early stage, and ensuring the appropriate level of knowledge and skills required to fulfil the role of director,
  • Reward and recognition structures that are fair and encourage ethical behaviour, and
  • Promoting high standards of business conduct across the supply chain, particularly regarding employment conditions and environmental impact.

What is clear from the Code is that directors can no longer expect to carry out their role separate from wider society. They must recognise the role of their business in society and its impact, both immediate and long-term, local and global. The behaviour of directors is under more scrutiny than ever, and the role of director should not be one that is accepted without due consideration of its demands and the standards of behaviour that the public expects to be met.

Public consultation

From the public consultation, the Commission is particularly interested in responses to the following questions:

  • Are there any additional issues that should be addressed in the Code?
  • How can awareness of the Code be encouraged amongst directors and the wider public?
  • Should directors make a public declaration or disclosure of their adoption of the Code?
  • Is there a role for government, regulators or professional bodies in encouraging adoption of the Code?
  • If you are currently serving as a director, would you be willing to commit yourself to the Principles and undertakings of the Code?

With thanks to Jessica Bennett, current trainee in the team, for their help in preparing this briefing.

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

© Farrer & Co LLP, June 2024

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About the authors

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India Benjamin

Senior Associate

India is a specialist corporate lawyer with significant experience advising on mergers and acquisitions, investments, joint ventures, complex structuring and re-structuring projects, and corporate governance. She has particular expertise working with a range of private businesses and corporates on ESG matters, and advising families and family businesses on transactional, structuring and governance issues. India is a regular speaker at conferences, both in the UK and overseas.

India is a specialist corporate lawyer with significant experience advising on mergers and acquisitions, investments, joint ventures, complex structuring and re-structuring projects, and corporate governance. She has particular expertise working with a range of private businesses and corporates on ESG matters, and advising families and family businesses on transactional, structuring and governance issues. India is a regular speaker at conferences, both in the UK and overseas.

Email India +44 (0)20 3375 7659
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