Directors behaving badly? A new code of conduct – your views needed

For many, an appointment as a company director of a UK company can be a major career moment - and possibly a daunting prospect.  Directors will be conscious of the responsibility placed upon them to drive the company's success but also to make sure that it is managed in line with good corporate governance principles.  In particular, directors will be aware that they are subject to the directors' duties principles set out in the Companies Act 2006 (see our note here as a useful guide to these: https://www.burges-salmon.com/news-and-insight/publications/the-responsibilities-and-duties-of-a-company-director).

While an understanding of directors' duties is fundamental to being able to carry out the role of a director effectively, directors often find that the Companies Act is big on principles but short on detail and guidance as to how to perform those duties.

The Institute of Directors (IoD) is proposing to introduce a new Code of Conduct for directors which, in their words, aims to be “a practical tool to help directors to make better decisions”.  This will be a voluntary code so companies and directors will not be required to sign up to it, and the IoD is clear that it is not intended to be burdensome for directors or to impede decision-making processes.  The purpose is to help UK business win back trust with the public in light of recent high profile controversies and the IoD has stated that the Code will help directors with the question of what a responsible director would do in a particular situation.

The Code will apply to all UK companies, regardless of size - whether in the private, public or non-profit sectors, and whether those companies are formed as companies limited by shares or by guarantee.

The Code of Conduct will be based around the following six key 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.

The IoD says: "The Code helps directors to fulfil their responsibilities by providing a clearly articulated statement of 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."

The IoD has launched a consultation process on the Code from businesses, and you can find a link to the consultation document here and the form of response document here.  The IoD is particularly keen to hear views on the following topics:

• Are there any additional issues that should be addressed in the Code?
• How can awareness of the Code be encouraged amongst directors and the wider public?
• Should directors make a public declaration or disclosure of their adoption of the Code?
• Is there a role for government, regulators or professional bodies in encouraging adoption of the Code?
• If you are currently serving as a director, would you be willing to commit yourself to the principles and undertakings of this Code?

It will remain to be seen as to the extent to which the Code will be taken up by the UK business community - but if it is a success, perhaps we will see a future where while the Code remains voluntary, an expectation emerges whereby businesses, particularly those with a higher public profile, feel obliged to adopt it as a means of demonstrating their compliance with best practice and fulfilling their ESG obligations.

In the meantime, if you have any questions on the consultation, or more broadly on the directors' duties regime, please contact Gregory Nash ([email protected]), a senior associate in Burges Salmon's Corporate  and M&A team, or your usual Burges Salmon contact.

"The Code helps directors to fulfil their responsibilities by providing a clearly articulated statement of 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."