By Stephanie Creasey
In an era marked by rapid changes and increasing scrutiny, the role of directors has become more critical than ever. Directors are at the helm of decision-making processes that not only shape the success of their organisations but also impact employees, customers, and the wider community.
Recognising this, the Institute of Directors (IoD) has developed a comprehensive Code of Conduct for Directors, which has been designed to provide a practical tool for directors to use to help them build and maintain trust in their business activities, to sit alongside and further enhance the legal duties placed on directors set out in the Companies Act 2006.
A Framework for Ethical Leadership
The new Code of Conduct, published in June 2024, is a voluntary commitment aimed at enhancing the ethical standards and professional behaviour of directors across all sectors. The initiative seeks to address the gaps often observed in business practices and aims to restore public confidence in business leadership. The Code is not about imposing additional regulatory burdens but rather about providing clear guidance for directors as to what good conduct should look like.
The IoD developed this Code, rooted in its Royal Charter obligation to promote high integrity among directors. By incorporating input from a diverse group of directors, the Code is practical and applicable to organizations of all sizes in the private, public, and not-for-profit sectors.
Principles Guiding the Code
The Code is built around six key principles that serve as the cornerstone for ethical and effective directorship:
1. Leading by Example: demonstrating high standards of personal conduct and decision-making, setting a positive example for others within their organisation. This principle emphasises the importance of embodying and promoting organisational values, challenging poor behaviour, and committing to continuous personal development.
2. Integrity: acting with honesty and strong ethical values, directors should prioritise the organisation’s interests and maintain transparency in their actions. This includes compliance with applicable laws and regulations, managing conflicts of interest, and maintaining confidentiality.
3. Transparency: directors should promote a culture that does not cover up wrongdoing, and provide clear, open and honest information about decisions and actions to stakeholders in order to build trust in both themselves and their organisation.
4. Accountability: directors must take personal responsibility for their actions and decisions, subjecting themselves to scrutiny and feedback. This involves understanding and fulfilling their legal duties, seeking independent advice when necessary, and being open to feedback.
5. Fairness: treating all individuals equitably, without bias, and promoting an inclusive culture where diversity is valued. Directors should make decisions based on merit and ensure that business practices promote equality of opportunity.
6. Responsible Business: Integrating ethical and sustainable practices into business strategies, considering the broader societal and environmental impacts of their decisions. This principle underscores the importance of rejecting corrupt practices and promoting high standards throughout the supply chain.
Commitment to High Standards
The six principles are supported by specific undertakings that directors are encouraged to adopt. These undertakings include:
- Exhibiting High Standards of Personal Conduct: Directors should demonstrate professionalism and consider the impact of their behaviour on all stakeholders.
- Ensuring Fair and Transparent Decisions: Directors should be open about potential conflicts of interest and promote a culture of transparency.
- Prioritising Organisational Interests: Decisions should be made in the best interest of the organisation as a whole, balancing short-term gains with long-term sustainability.
- Promoting Equality and Diversity: Directors should ensure that their organisation’s practices are inclusive and non-discriminatory.
- Engaging Transparently with Stakeholders: Communication should be clear, accurate, and timely.
Benefits of Adopting the Code
By voluntarily agreeing to adopt the principles set out in the Code, directors can hope to achieve several positive outcomes:
- Respect and Trust: Authentic leadership that aligns actions with words fosters respect and trust among employees and stakeholders. When directors lead by example, it inspires confidence and loyalty within the organisation.
- Strong Relationships: Transparency and fairness help build trust, credibility and confidence in an organisation and its culture in turn leading to stronger, more positive and sustainable relationships with stakeholders.
- Enhanced Reputation: Demonstrating integrity and accountability helps build a positive organisational reputation, crucial for long-term success. A strong reputation attracts talent, investment, and customer loyalty.
- Sustainable Success: Responsible business practices help ensure that the organisation contributes positively to society and the environment, enhancing the organisation’s resilience and safeguarding its future success.
Call for Feedback
The IoD is seeking feedback from the business community and the public to refine and enhance the Code. They are particularly interested in insights on additional issues that should be addressed, ways to promote awareness of the Code, and the role of regulators in encouraging its adoption. Feedback can be submitted until Friday, 16 August 2024, via the email address: codeofconduct@iod.com.
Summary
The Code of Conduct represents a significant step towards embedding ethical practices in business leadership. By committing to these principles, directors can lead by example, foster trust and integrity, and ultimately contribute to a more ethical and sustainable business environment.
In today’s complex and rapidly evolving business landscape, the Code will be a valuable tool in guiding directors to make decisions that are not only legally compliant but also ethically sound and socially responsible. As directors navigate their roles, we hope the Code will help them focus on core values driving long-term success and positive societal impact.
Final Thoughts
The development of the Code was a collaborative effort, reflecting the input of experienced directors and stakeholders. It recognises the multifaceted challenges directors face and provides practical guidance to help them navigate these complexities with confidence and integrity.
The Code ultimately aims to foster a culture of high ethical standards and responsible leadership. The Code ensures that directors comply with their legal obligations and strive to exceed them. Consequently, they enhance overall trust and integrity in the business world.
360 Business Law provides tailored legal support for directors following the IoD’s Code of Conduct. Their advisors guide regulatory compliance, ethical decision-making, and risk management. Consequently, directors confidently navigate complex legal landscapes. Directors receive tools and advice to uphold integrity, transparency, and accountability. This fosters trust and ensures sustainable success.