A code of conduct for directors

A code of conduct for directors

“The role of director has never been more vital, complex and challenging.” The opening remarks from a new consultation by the Institute of Directors (IoD) perfectly illustrate the role played by directors in today’s marketplace. As the IoD remarks, directors not only make decisions that are fundamental to the success of the organisation, those decisions have consequences for employees, customers, stakeholders as well as the wider economy.

The Companies Act 2006 sets out seven duties of a director including exercising judgement, care, skill and diligence. As the IoD comments, the Act sets out a baseline of conduct. However, directors need to act above and beyond that base if they are to optimise results in a complex world. Hence, the new consultation which looks to establish a voluntary code of conduct for directors.

Inspired by the Nolan Principles which were established in 1995 by the Committee on Standards in Public Life, the voluntary directorial code looks to establish six principles for directors to adopt:

  • Leading by example.
  • Integrity.
  • Transparency.
  • Accountability.
  • Fairness.
  • Responsible business.

Each of those six principles is underpinned by a number of undertakings which, taken together, lead to a positive behavioural outcome. For example, Principle 3, that of transparency, calls on directors to undertake to be open and transparent about any issues which may affect objectivity as well as to promote a culture which encourages people to speak up about concerns or mistakes. Directors who sign up for the code will also be expected to communicate with stakeholders in a ‘straightforward and accessible manner.’

This is a requirement which has echoes both in the FRC’s drive for true and fair reporting and in corporate governance standards; an area which also ties in strongly with the corporate governance services which we at Elemental provide to companies looking to enhance their governance framework and practices.

By adopting the transparency undertakings, the IoD comment that directors will be able to build positive relationships and effective collaborations with key stakeholders as well as creating an open culture within the company. Other outcomes, the IoD say, will help to build trust and respect, thereby furthering the building of sustainable and strong business relationships.

Commenting on the code IoD Director General Jonathan Geldart highlighted that the code has been written by directors for directors before going on to highlight that: “it offers a roadmap that can help individual directors make the right decisions for themselves and their organisations, often in the face of complex challenges and trade-offs.”

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