IoD: Code of Conduct for Directors – Consultation paper

On 6 June 2024, the Institute of Directors (IoD) published a draft Code of Conduct for Directors (Code) for consultation. The Code has been prepared for the IoD by a Commission chaired by Lord McNicol of West Kilbride.

Purpose of the Code

The Code has been developed as a practical tool to help directors make better decisions and to provide those that run organisations with a behavioural framework to help them build and maintain the trust of the wider public in their business activities.

It is aimed at directors of organisations of all sizes in the private, public and not-for-profit sectors and is drafted as an individual commitment designed to complement other conduct mechanisms that directors may be subject to. The Foreword to the Code states that it “represents a voluntary commitment and is not intended to hold back directors or create a new burden of compliance”. It comments that most of the undertakings in it are matters of common sense but that, 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? 

Structure of the Code

The Code is structured around six key “Principles of Director Conduct” (Principles). These Principles stem from the Seven Principles of Public Life (also known as the Nolan Principles), first published in 1995 by the Committee on Standards in Public Life.

Each Principle is underpinned by a number of specific “Undertakings” and the aim is that by applying the Principles and fulfilling the Undertakings, directors should be able to achieve the positive “Outcomes” which are set out in the Code. 

Guidance containing examples of how the Code can be applied in various specific scenarios will be annexed to the final version of the Code when that is published, but these are not yet available.

Principles

The six Principles are as follows:

• Principle 1: Leading by Example – demonstrating exemplary standards of behaviour in personal conduct and decision-making. There are six Undertakings relating to this, including that the director will exhibit high standards of personal conduct and professionalism. 
• Principle 2: Integrity – acting with honesty, adhering to strong ethical values, and doing the right thing. Nine Undertakings relate to this, including that the director will comply with the letter and spirit of applicable law and be willing to cooperate fully with regulatory authorities.
• Principle 3: Transparency – communicating, acting and making decisions openly, honestly and clearly. Five Undertakings relate to this, including that the director will promote an open business culture which does not cover up wrong-doing or mistakes.
• Principle 4: Accountability – taking personal responsibility for actions and their consequences. Six Undertakings relate to this, including that the director will understand the legitimate expectations of shareholders and other relevant stakeholders and engage appropriately with them.
• Principle 5: Fairness – treating people equitably, without discrimination or bias. Eight Undertakings relate to this, including that the director will make decisions on an objective and evidence-based basis.
• Principle 6: Responsible Business – integrating ethical and sustainable practices into business decisions, taking into account societal and environmental impacts. Five

Undertakings relate to this, including that the director will promote high business standards across the supply chain, particularly regarding employment conditions and environmental impact.

Outcomes

The specified Outcomes are concerned with matters of respect, confidence, trust, reputation, relationships, resilience and legitimacy. 

Responding to the consultation

Comments on the Code are requested by 16 August 2024. The IoD notes that, in particular, it would be interested in receiving views on the following: 

• 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? 
• Would current directors be willing to commit themselves to the Principles and Undertakings set out in the Code?

(IoD, Code of Conduct for Directors – Consultation Paper,06.06.2024)

(IoD, IoD launches public consultation on a Code of Conduct for Directors, 06.06.2024)