New voluntary Code of Conduct for UK directors aims to drive better decision-making

The IoD has said that the Code will help UK directors with the question of what a responsible director would do in a particular situation.

The UK’s Institute of Directors (IoD) has published a consultation document on a Code of Conduct for Directors, saying it would serve as “a practical tool to help directors make better decisions.”

The Code also provides organization leaders with a behavioral framework that can help them build and maintain the trust of the wider public in their business activities.

Directors are subject to the directors’ duties principles set out in the Companies Act 2006. The proposed new Code represents a voluntary commitment and is not intended to hold back directors or create a new burden of compliance, said the IoD.

Ethics and values

Jonathan Geldart, IoD director general, said: “The purpose of this Code is to help UK business win back public trust by embedding the ethics and values that are already adopted as a matter of course by most responsible business leaders.”

Following recent corporate scandals at the Post Office, Carillion, P&O Ferries, BHS and other significant enterprises, there is demand for business to be held more accountable to wider society. The IoD has said that the Code will help directors with the question of what a responsible director would do in a particular situation.

The Code will apply to all UK companies, regardless of size, whether in the private, public or non-profit sectors, and whether those companies are formed as companies limited by shares or by guarantee. The IoD said: “The Code helps directors to fulfil their responsibilities by providing a clearly articulated statement of what good conduct looks like. As they navigate difficult and complex situations, the Code helps directors to clarify their thinking, with positive implications for themselves, their organisational culture and society as a whole.”

Key principles

The new code is structured around six key “Principles of Director Conduct”:

  1. Leading by example – demonstrating exemplary standards of behavior 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.

The Code of Conduct was developed for the IoD by a Commission chaired by Lord McNicol of West Kilbride, a former general secretary of the Labour Party and senior officer of the GMB union, with the support of BDO.

Ian Bennington, head of governance, risk and compliance at BDO, said: “We were delighted to support the IoD in the development of its first voluntary code of conduct for directors. This will prove useful for those stepping up into director roles for the first time. It will also support existing directors to assess and reflect on their own ways of working. Fundamentally, it’s about encouraging ethical and responsible decision-making that benefits individual organisations and drives up standards across all UK businesses.”

Common sense

Commenting on the publication, Lord McNicol said: “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?”

On the future popularity of the Code, Gregory Nash of Burges Salmon said: “It will remain to be seen as to the extent to which the Code will be taken up by the UK business community – but if it is a success, perhaps we will see a future where while the Code remains voluntary, an expectation emerges whereby businesses, particularly those with a higher public profile, feel obliged to adopt it as a means of demonstrating their compliance with best practice and fulfilling their ESG obligations.”

The IoD is seeking views on the Code of Conduct from the business community and the general public by Friday August 16, 2024.