New Code of Conduct for Directors published by Institute of Directors

The role of directors has become increasingly challenging as they have to balance a variety of different and sometimes conflicting interests.  They can no longer assume that financial return is the key objective but must consider wider topics such as sustainability, AI and hybrid working.

The Institute of Directors (IoD) has published a voluntary Code of Conduct for Directors (Code) which they describe as providing a “practical tool to help directors make better decisions.” The Code represents a voluntary commitment from directors and the companies that they serve to support and action positive organisational culture, ethics and integrity. 

Earlier in our ESG in the Boardroom series we looked at how important corporate governance is for companies and how directors play a key part in this. The IoD Code is designed to support directors of organisations of all sizes, whether public or private, and should be complementary to any other frameworks or governance codes that the director or company may be subject to, including the QCA Code (covered in this article).

How does the Code work?

The code is structured around six high level principles of director conduct, each underpinned by several undertakings.  By following the principles and fulfilling the undertakings, directors should be able to achieve the desired outcomes which are:

• Respect

• Reputation

• Confidence

• Trust

• Relationships

• Legitimacy

• Resilience

Directors can reference these outcomes when key decisions need to be made, as they ask themselves the question: “what would a responsible director do in this situation?”

What are the six principles and how can directors apply them in practice?

1. Leading by example: demonstrating exemplary standards of behaviour in personal conduct and decision-making

This principle is about setting a high bar in terms of your own behaviours, encouraging others to follow suit. Demonstrating the values, ethics and commitments which are expected by your organisation in all that you do. Directors should be doing more than simply putting in place policies on matters such as well-being, inclusivity and diversity, they should be demonstrating their commitment to such policies on a day-to-day basis via their actions.  Seeking to have a board and senior leadership team who are diverse and representative and ensuring that workspaces have areas where employees can rest or relax during breaks.

2. Integrity: acting with honesty, adhering to strong ethical values, and doing the right thing.

Integrity is about consistently doing what is right. Abiding with relevant laws and regulations, acting in good faith and upholding high ethical standards. Director decisions should prioritise the interests of the organisation over personal gain, and balance organisational objectives with the interests of key stakeholders. For example, directors should constructively challenge behaviours and attitudes which fall short of the standards set by the organisation.

3. Transparency: communicating, acting and making decisions openly, honestly and clearly.

Transparency means being open about decisions and actions. Providing accurate, timely and consistent information to stakeholders, demonstrating that decisions are fair and reasonable.  Non-executive directors in particular should be open and transparent with the board and other stakeholders about any conflicts of interest they may have, e.g. where they may be on the board of customers, suppliers or competitors which may affect (or be perceived as affecting) their objectivity.

4. Accountability: taking personal responsibility for actions and their consequences.

Being accountable means being answerable for the decisions and actions taken in fulfilling duties as a director. Subjecting actions and decisions to scrutiny and being prepared to provide an honest and transparent account of conduct. This could involve obtaining independent reviews of aspects of the business, such as the governance structure or the tax obligations of the business and considering implementing any recommendations.

5. Fairness: treating people equitably, without discrimination or bias.

Fairness encompasses making decisions impartially, consistently and based on merit, while providing justification for decisions. Being inclusive and treating everyone with respect, dignity and consideration. Fairness is essential for nurturing a culture where diversity is welcomed, and all individuals have the chance to excel and realise their potential. For example, directors could consider attending training on unconscious bias to help them remain fair and neutral in their decision making.

6. Responsible business: integrating ethical and sustainable practices into business decisions, taking into account societal and environmental impacts.

Responsible business involves combining an entrepreneurial mindset with a recognition that the scope of director responsibilities extends beyond the organisation and can have a broader impact on society and planet. Ensuring environmentally safe, ethical and equitable working conditions and products. Aligning strategic objectives with creating favourable outcomes for stakeholders over the longer term, striking a balance between financial performance and societal impact.  For example, directors could try and conduct meetings virtually where possible and have board packs provided electronically to save printing large paper packs. They could also consider benefit schemes which encourage sustainable behaviours such as electric car leasing schemes and interest free loans for public transport season tickets.

What does this mean for directors?

The Code is not enforceable, and the Institute of Directors have been clear in saying that it does not add to the legal or regulatory duties owed by directors.  It is clear however that navigating the role of director has become ever more complex as directors are asked to consider and evaluate not just financial considerations but non-financial and more non-traditional issues such as organisational culture, climate change and impact on the communities they operate in.  The Code is another tool for directors to use when trying to balance competing issues to make the right decisions for their business.

A full copy of the Code can be found here.

Our team regularly advises directors on their responsibilities and obligations, to help them make the best decisions for their businesses despite the often varied and conflicting interests of stakeholders. If you would like to know more then please get in touch. This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.