Institute of Directors code of conduct for directors – striving for good governance

Posted: 28/11/2024

The Institute of Directors (IoD) has published a voluntary code of conduct for directors of UK businesses. The code is intended to provide a practical tool for directors to make informed decisions, prioritise the interests of their organisations, and balance financial performance with societal impact.

Key principles

The code is structured around six key principles and corresponding undertakings, which are designed to guide directors in their decision-making processes and ensure that they prioritise the interests of their organisations and stakeholders. These are:

• Leading by example – showing exemplary behaviour in personal conduct and decision-making.
• Integrity – acting honestly, adhering to relevant laws and regulations, and upholding strong ethical values.
• Transparency – ensuring openness in decision-making along with providing accurate, timely, and consistent information to stakeholders.
• Accountability – taking responsibility for actions and their outcomes.
• Fairness – treating all stakeholders equitably.
• Responsible business - integrating ethical and sustainable practices, aiming for long-term business success.

Adoption

While the IoD acknowledges the range of directors’ duties already in place, it notes that the lack of a directors’ code of conduct presents a key gap in the UK's corporate governance framework, underlined by recent corporate scandals that have damaged public trust in businesses.

Consequently, individual directors and boards of all sizes – across private, public and not-for profit sectors – are being encouraged to publicly adopt the code to demonstrate their commitment to high ethical standards. Possible mechanisms suggested may include disclosure in annual reports and on websites, communications to employees and other stakeholders, and through social media. The IoD has developed a kitemark for this purpose.

The IoD plans to periodically review the code and develop guidance on how it can be applied to a range of practical scenarios.

Commentary

While the IoD notes that businesses which adopt the code will benefit from improved governance, enhanced reputation, and better decision-making processes, some concerns have been raised about the effectiveness of a voluntary initiative, amid a proliferation of industry and sector-specific governance codes (along with those already in place for public companies).

Overall, however, the IoD believes that a voluntary code will be more effective in promoting a culture of accountability, as it will be adopted by directors who are committed to upholding high standards of behaviour. In turn, stakeholders, including investors, customers, and employees, will have greater confidence in the organisations they interact with.

It remains to be seen how organisations respond to the code, amid unprecedented scrutiny regarding the way in which businesses govern themselves and the matrix of growing challenges faced by directors.

Our specialists advise across the full spectrum of governance-related risks and compliance matters and are well-equipped to help businesses and directors proactively manage these issues. Please contact us for further information.

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