The Institute of Directors (IoD) has published a consultation document on a Code of Conduct for Directors (the Code), developed for the IoD by a Commission chaired by Lord McNicol of West Kilbride. It is intended to be a practical tool to help directors make better decisions.

The Code is structured around six key ‘Principles of Director Conduct’, inspired by the ‘Seven Principles of Public Life’ (also known as the ‘Nolan Principles’):

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

Each Principle is underpinned by a number of specific Undertakings, for example, Principle 1 includes undertakings to “exhibit high standards of personal conduct and professionalism” and “consider the impact of my behaviour on employees, fellow directors and other stakeholders.” The intent being that, by applying the Principles and fulfilling the Undertakings, directors will be well placed to achieve specified Outcomes, namely respect, trust, confidence, reputation, relationships, legitimacy and resilience.

The Code is not intended to derogate from any other codes of conduct to which directors may be subject by virtue of their organisations or professional bodies, but rather to complement the same and represent an individual commitment by each director. Similarly, the Code does not seek to add to specific legal and regulatory requirements put on directors by legislation, such as the Companies Act 2006. Importantly, the Code is not associated with a formal enforcement mechanism: it is a voluntary commitment, not intended to “hold back” directors or create a new burden of compliance.

The Code certainly makes all the right noises about what “good conduct” looks like and may provide a useful resource to directors, particularly those that are new to the role or operating within smaller companies where there may be limited existing guidance internally. However, we do wonder whether the use of the term “Undertaking” is appropriate in a voluntary Code given the legal connotations it has.

The consultation is open for comment until 16 August 2024. It will be interesting to see whether any tweaks are made as a result when the Code is ultimately published in final form. In this regard, we note that the IoD also intends to publish Guidance following approval of the final version of the Code which will contain examples of how the Code can be applied in various specific scenarios.