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Code of Conduct
for Directors
Published with the support of:
IBDO
October 2024
loD I Code of Conduct for Directors
Table of contents
Foreword
Introduction to the Code
The Code Framework
Principle 1 I Leading by Example
Principle 2 I Integrity
Principle 3 I Transparency
Principle 4 I Accountability
Principle 5 I Fairness
Principle 6 I Responsible Business
Applying the Code
Acknowledgements
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loD I Code of Conduct for Directors
Foreword
The role of director has never been more vital, complex and challenging. Directors
make decisions that are fundamental to the success of their organisations, and
which have life-changing consequences for their employees, customers and other
stakeholders. The judgements that directors make every day ultimately determine
the fate of the economy and the future of many of our public services.
We can be rightly proud of UK business organisations much of the time. However, on
occasion, business decision makers fall short of what society expects. Those at the top may
lose touch with what really matters - namely the need to demonstrate exemplary values
and integrity in both their business decisions and their personal behaviours. As a result, we
have in recent years observed scandals and controversies which have exerted a negative
effect on the esteem in which business is held. In the absence of public trust, businesses
may find that their freedom to forge their own destiny is increasingly called into question.
The purpose of this Code is to help UK business win back that trust by embedding the
values that are already adopted as a matter of course by most responsible business leaders.
Written by directors for directors, 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. The Code represents a voluntary commitment and is not intended
to hold back directors or create a new burden of compliance. During the public consultation
exercise, conducted in summer 2024, the Code received strong endorsement from the
overwhelming majority of respondents, and most agreed that the undertakings contained
within the Code are matters of common sense. However, at crucial moments, when key
decisions have to be made, the Code may serve as a useful tool that directors can refer to
when asking themselves the question: what would a responsible director do in this situation?
Lord (lain) McNicol Jonathan Geldart
Chair, loD Code Director General,
of Conduct Commission Institute of Directors
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loD I Code of Conduct for Directors
Introduction to the Code
This Code of Conduct is a practical tool to help directors make better decisions. It provides
organisational leaders with a behavioural framework that can help them build and maintain the
trust of the wider public in their business activities.
The Code has been developed by the Institute of Directors (loD) in support of its Royal Charter’
obligation to promote high levels of integrity on the part of directors. It also fulfils the demand
of loD members? for a code which underpins high standards of professional ethics across the
director community.
The Code is applicable to directors of organisations of all sizes in the private, public and not-
for-profit sectors. Whilst it is recognised that many directors may already be subject to codes
of conduct arising from their organisations or professional bodies, this Code is an individual
commitment designed to complement such mechanisms.
The role of the director is associated with specific legal and regulatory responsibilities, including
the general legal duties defined in the Companies Act 2006.3 This Code does not add to these
legal obligations. Nor is it associated with a formal enforcement mechanism. Rather, it sets a
bar for director conduct beyond the legal baseline as a means of enhancing the legitimacy and
reputation of directorship in the eyes of society and stakeholders.
Modern directorship is increasingly challenging. It involves more than simply complying with the
law or applying specialist knowledge and expertise. Directors are expected to define and embed
the values of their organisation and apply high ethical standards. They must apply judgement to
complex situations in which competing interests, both personal and organisational, as well as the
rights and interests of various stakeholders, must be prioritised and balanced. In such scenarios,
identifying the right way forward is not always straightforward.
Furthermore, given their shared legal responsibility for the organisation, directors are often
subject to a high level of public scrutiny - both from within the organisation and in the media.
Increasingly, director conduct is a source of business and reputational risk for both organisations
and individual directors.
1 iod.com/app/uploads/2022/03/loD_Royal-Charter-3c45573e09f3066dda603aa93337eefd.pdf
2 iod.com/news/governance/iod-policy-paper-a-voluntary-code-of-conduct-for-directors,
3. These duties are: 1) To act within powers; 2) To promote the success of the company; 3) To exercise independent
judgment; 4) To exercise reasonable care, skill and diligence; 5) To avoid conflicts of interest; 6) To not accept
benefits from third parties; and 7) To declare interests in proposed or existing transactions or arrangements,
legislation .gov.uk/ukpga/2006/46/part/10/chapter/2/crossheading/the-general-duties
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Wee
Si
This Code helps directors to fulfil SS
their responsibilities by providing
a clearly articulated statement of I <e-
what good conduct looks like. As
they navigate difficult and complex
situations, the Code helps directors
to clarify their thinking, with positive
implications for themselves, their
organisational culture and society
as a whole.
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“AY
The Code Framework
The Code is structured around six key Principles of Director Conduct
Principles’). These Principles are inspired by the Seven Principles of Public
Life (formerly known as the Nolan Principles‘), first published in 1995 by
the Committee on Standards in Public Life.
Principles of Director Conduct:
@ Leading by example: Demonstrating exemplary standards of behaviour in personal
conduct and decision-making.
@ Integrity: Acting with honesty, adhering to strong ethical values, and doing the
right thing.
© Transparency: Communicating, acting and making decisions openly, honestly and clearly.
@ Accountability: Taking personal responsibility for actions and their consequences.
© Fairness: Treating people equitably, without discrimination or bias.
@ Responsible business: Integrating ethical and sustainable practices into business
decisions, taking into account societal and environmental impacts.
4 gov.uk/government/publications/the-7-principles-of-public-life
6
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loD I Code of Conduct for Directors
Each Principle is underpinned by a number of specific Undertakings. By applying the
Principles and fulfilling the Undertakings, directors are well placed to achieve the positive
Outcomes set out in the table below.
Responsible
Business
Leading
by Example
Integrity Transparency Accountability _I Fairness
Principles
@ Exemplary behaviour Abiding with relevant I Open and accurate Aiming for
2 embodying and laws and regulations, I communication long-term sustainable
% promoting values acting in good faith I about decision- providing honest on impartiality, business success
£ and challenging and upholding high making and actions —_ accounts of your consistency and considering social and
$ I poor behaviour ethical standards conduct merit environmental impacts
2
5
RESPECT CONFIDENCE RELATIONSHIPS RESILIENCE
REPUTATION TRUST LEGITIMACY
3
—
8
8
3
°
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loD I Code of Conduct for Directors
Principle 1 I Leading by Example
Demonstrating exemplary standards of behaviour
in personal conduct and decision-making.
Leading by Example is about setting a high bar in terms of your own
behaviours, which in turn encourages others to follow suit. It involves
demonstrating the values, ethics and commitments which are expected by
your organisation in all that you do.
As a director, I undertake to:
+ Exhibit high standards of personal conduct and professionalism.
* Consider the impact of my behaviour on employees, fellow directors and
other stakeholders.
+ Avoid behaviour which might adversely affect the reputation of my organisation,
or which contradicts its values.
+ Treat everyone with respect, dignity and consideration, and demonstrate concern
for their wellbeing and mental health.
* Devote sufficient time and attention to my role as a director.
+ Strive to develop my own competency through continuing professional development
and encourage that in others.
Outcomes: You will gain respect, loyalty and trust as an authentic leader, where your
actions align with your words. You will inspire and influence others to emulate your positive
behaviours. Through your leadership, the organisation will build strong business relationships
and be well placed to achieve sustainable business success.
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loD I Code of Conduct for Directors
Principle 2 I Integrity
Acting with honesty, adhering to strong
ethical values, and doing the right thing.
Integrity is about consistently doing what is right. You should abide
with relevant laws and regulations, act in good faith and uphold high
ethical standards. Your decisions should prioritise the interests of the
organisation over personal gain, and balance organisational objectives
with the interests of key stakeholders.
As a director, I undertake to:
* Comply with the letter and spirit of applicable law and be willing to cooperate
fully with regulatory authorities.
* Deal honestly with all parties.
+ Place the interests of the organisation and its societal impact above
my personal interests.
+ Bealert to perceived conflicts of interest and manage them when they arise.
* Voice constructive challenge and disagreement on matters of concern.
* Challenge words, behaviour or attitudes that fall below expectations.
+ Adhere to collective responsibility for agreed decisions.
+ Be prepared to resign from the board if a matter of conscience, judgement or good
governance cannot be remediated through good business practices.
+ Safeguard confidential information unless appropriate disclosure has been
authorised, and not make improper use of information.
Outcomes: Integrity will foster trust and respect from others and cultivate an atmosphere of
honest and open communication. By demonstrating integrity, you not only promote an ethical
organisational culture but also strengthen the collective commitment to achieving shared
goals and objectives. This helps you build strong stakeholder relationships thereby enhancing
organisational performance and reputation.
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loD I Code of Conduct for Directors
Principle 3 I Transparency
Communicating, acting and making decisions openly,
honestly and clearly.
Transparency involves being open about your decisions and actions.
It entails providing accurate, timely and consistent information to
stakeholders, demonstrating that your decisions are fair and reasonable.
As a director, I undertake to:
+ Be open and transparent to the rest of the board and relevant stakeholders
in respect of anything that might be perceived as affecting my objectivity
(such as a conflict of interest).
* Promote an open business culture which does not cover up wrong-doing or mistakes.
* Encourage the adoption of ‘speak up’ mechanisms which enable employees and other
relevant stakeholders to report concerns about any misconduct or actions that are not
aligned to the organisation’s values.
+ Ensure that all communications with stakeholders are undertaken in a straightforward
and accessible manner, providing accurate, relevant and timely information.
+ Be candid with stakeholders about the limits of transparency (such as when
information is of a commercially sensitive nature or subject to legal restriction).
Outcomes: Transparency builds trust, credibility, and confidence. By demonstrating the
rationale behind your decision-making, you will promote clarity and understanding, enabling
positive relationships and effective collaboration with key stakeholders. Transparency will help
you stimulate an open and innovative culture, with reduced vulnerability to hidden risks.
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loD I Code of Conduct for Directors
Principle 4 I Accountability
Taking personal responsibility for actions and
their consequences.
Being accountable means you are answerable for the decisions and
actions you take in fulfilling your duties as a director. This includes
subjecting your actions and decisions to scrutiny and being prepared to
provide an honest and transparent account of your conduct.
As a director, I undertake to:
+ Comply with my legal duties to the organisation, take personal responsibility for
my actions and share collective responsibility for the decisions of the board.
+ Be open to feedback and, where applicable, make improvements based upon
that feedback.
* Oversee and hold the organisation to account in respect of its performance and
embodiment of the organisation’s values.
+ Understand the legitimate expectations of shareholders and other relevant
stakeholders and engage appropriately with them.
* Seek independent advice on matters of concern at an early stage and, where
appropriate, call for action to protect the interests of creditors if the organisation
is struggling financially.
+ Reflect on whether I have the knowledge and skills required to fulfil my role as
a director and, if any material gaps cannot be remedied through appropriate
training, decline to serve on a board.
Outcomes: Accountability will improve the quality of your decision-making and is essential
in maintaining the trust and confidence of stakeholders. Commitment to accountability will
cement your reputation as a trusted fiduciary and help build the governance standing of
your organisation.
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loD I Code of Conduct for Directors
Principle 5 I Fairness
Treating people equitably, with no discrimination
or bias.
Fairness encompasses making decisions impartially, consistently and
based on merit, while providing justification for your decisions. It involves
you 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.
As a director, I undertake to:
* Make decisions as objectively as possible and be alert to the risk of bias or groupthink.
* Recognise and respect the legitimate interests of relevant stakeholders - including
customers, employees, investors and suppliers.
* Promote equality of opportunity in all business activities.
+ Encourage the fair treatment of suppliers and customers.
+ Champion diversity of thought, by being open to differing ideas and views.
+ Engender an inclusive culture where all employees can bring their best selves
to work, and in which concerns they raise will be investigated without fear of
adverse consequences.
+ Share credit with those contributing to successful outcomes, and provide
constructive feedback where performance does not meet expected standards.
+ Advocate for reward and recognition structures that are fair, encourage ethical
behaviour and support a longer-term perspective.
Outcomes: By demonstrating fairness, you will build and maintain confidence in your
decision-making and foster a sense of loyalty amongst colleagues and stakeholders.
Fairness leads to an inclusive and motivated environment where everyone feels valued
and respected, with positive consequences for sustainable business success.
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loD I Code of Conduct for Directors
Principle 6 I Responsible Business
Integrating ethical and sustainable practices into
business decision-making, taking into account
societal and environmental impacts.
Responsible Business entails combining an entrepreneurial mindset with
a recognition that the scope of your responsibilities extends beyond your
organisation and can have a broader impact on society and planet. This
involves ensuring environmentally safe, ethical and equitable working
conditions and products. Responsible Business requires you to align
strategic objectives with creating favourable outcomes for stakeholders
over the longer term, striking a balance between financial performance
and societal impact.
As a director, I undertake to:
* Consider the consequences of my decisions for society, communities and
the environment.
* Manage risk in a responsible manner and avoid prioritising the short-term financial
interests of shareholders over the longer-term resilience and strategic objectives
of the organisation as a whole.
* Promote high business standards across the supply chain, particularly with regard
to employment conditions and environmental impact.
+ Ensure that artificial intelligence and other technological innovations are utilised
by the organisation in an informed and responsible manner.
+ Reject corrupt business practices.
+ Advocate for an organisational culture which values diversity and inclusion.
Outcomes: By linking the success of your organisation to that of wider society and the
environment, you will contribute to a more sustainable and equitable future. This will resonate
with stakeholders, leading to enhanced trust and confidence in your leadership, setting a
foundation for enduring relationships with customers, employees, and the communities in
which you operate.
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loD I Code of Conduct for Directors
Applying the Code
The Code is a voluntary source of guidance for directors. If the
recommendations of the Code are perceived as conflicting with
mandatory requirements - such as those arising from legislation,
regulation, contractual obligations, professional standards or
organisational rules - then the requirements of the latter should prevail.
Directors should apply their judgement in the application of the Code,
and seek professional advice in respect of fulfilling their legal obligations.
There is no formal enforcement mechanism associated with the Code.
However, organisations and their stakeholders may choose to use the Code to
guide their own assessment of director actions and behaviour.
Although the Code is directed at individual directors, boards are also encouraged
to publicly commit to the Code. Possible mechanisms may include disclosure in
annual reports and on websites; communication to employees and other
stakeholders; and through social media. The loD has developed a kitemark
that can be used to publicly signify commitment to the Code.
The Code is intended for anyone fulfilling a director or director-equivalent role.
This encompasses both executive and non-executive director roles in the private,
public and not-for-profit sectors. The Code has been designed for the directors of
organisations of all sizes, from micro entities through to the largest listed companies
or publicly owned entities. Although the Code has been framed with UK directors in
mind, those operating in non-UK jurisdictions may also find value in the Code.
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loD I Code of Conduct for Directors
Acknowledgements
The Code of Conduct was developed for the loD by a Commission under
the chairmanship of Lord McNicol which met between October 2023 and May 2024.
The Code was then subject to a public consultation between June and August 2024.
The loD would like to express its thanks to all of the Commissioners:
Lord (lain) McNicol of West Kilbride (Chair) Emma Lovell
Alex Tamlyn Georgina Hirsch
Anne Fairweather Dr lan Peters MBE
Anne Whitaker Liz Barclay
Baroness Margaret Ford Margaret Casely-Hayford CBE
Brigid Napier Paul Boyle OBE
Dame Elish Angiolini Paul Munden CDir
Deshpal Panesar KC Dr Suzy Walton CDir
The loD would like to particularly acknowledge the contribution of BDO,
with whom we co-managed the project. In particular, we are grateful to
Darriane Garrett, Paul Hockley and Alberta Rice.
The project was coordinated at the loD by Dr Roger Barker and Sasha Trapani.
The IoD plans to review and update the Code on
a periodic basis. In addition, the loD will over time
develop guidance on the Code which describes how
it can be applied in a variety of real-life scenarios.
This will be made available on the loD’s website.
The Institute of Directors is a non-party political organisation,
founded in 1903, with approximately 20,000 members.
Membership includes directors from right across the business
spectrum, from media to manufacturing, professional services
to the public and voluntary sectors. Members include CEOs of
large corporations as well as entrepreneurial directors of
start-up companies
The IoD was granted a Royal Charter in 1906, instructing it
to “represent the interests of members and of the business
community to government and in the public arena, and to
encourage and foster a climate favourable to entrepreneurial
activity and wealth creation.” The Charter also tasks the
Institute with promoting “for the public benefit high levels of
skill, knowledge, professional competence and integrity on the
part of directors”, which the loD seeks to achieve through its
training courses and publications on corporate governance.
The loD is an accredited Good Business Charter organisation.
Scan the QR code
for more business resources
iod.com/resources
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