New voluntary Code of Conduct for directors launched

In June 2024, the Institute of Directors (“IoD”) launched a public consultation on a proposed voluntary Code of Conduct for directors of all types of corporate entity (including private and public companies and those with charitable status) (“the Code”).

The public consultation ended in mid-August, with the Code being officially launched on 23 October 2024. According to the IoD, the Code is “a practical tool to help directors make better decisions”.

“The Code” can be accessed here.

As such, the Code is intended to be an individual commitment from directors to act with integrity and is structured around six key principles:

1. Leading by example

Requires directors to demonstrate exemplary standards of behaviour in personal conduct and decision-making, on the basis that setting a high bar for their own behaviour will encourage others within the organisation to follow suit.

2. Integrity

Requires directors to act with honesty, adhere to strong ethical values, and “do the right thing”. The Code notes that integrity will foster trust and respect from others and cultivate an atmosphere of honest and open communication, in turn helping the director build strong stakeholder relationships and ultimately enhancing the organisation’s performance.

3. Transparency

Requires directors to communicate, act and make decisions openly, honestly and clearly. The Code states that the outcome of such communication is the building of trust, credibility and confidence.

4. Accountability

Requires directors to take personal responsibility for their actions and their consequences, which includes subjecting his/her own actions and decisions to scrutiny and being prepared to provide an honest and transparent account of his/her conduct.

5. Fairness

Requires directors to treat people equitably, without discrimination or bias.

6. Responsible business

Requires directors to integrate sustainable practices into business decisions, taking into account societal and environmental impacts.

Applying the Code

The Code is voluntary, offering what is effectively guidance, with no formal enforcement mechanism.  Whether or not the Code will bite depends on the willingness of directors to follow it. To enhance accountability (and the likelihood of adhering to the principles) the IoD encourages companies to publicly commit to compliance with the Code by, for example, making disclosures in annual accounts / on the organisation’s website.

It is also worth considering the extent to which the Code impacts the duties owed by a director to a company in terms of the Companies Act 2006. The short answer is that these duties remain unchanged and the Code serves only to complement the existing statutory framework. If any of the recommendations made by the Code are seen as conflicting with other mandatory requirements then those other provisions should prevail.  For example, principles will have to be balanced against a director’s requirement to promote the success of their company under S172 of the Companies Act 2006. Principles followed by directors so strictly to the extent it neglects their statutory duties could give rise to claims by shareholders if decision making was overly influenced by other considerations.

Summary

The Code is a helpful guide for any director, particularly those who are newly appointed. Whilst voluntary, it is also a measure against which directors’ conduct may be appraised.

Any director or member of a company seeking legal advice surrounding issues of corporate governance can contact BTO’s corporate team who are on hand to advise.