Recent corporate scandals and collapses—including those at Carillion, BHS, Patisserie Valerie and P&O Ferries—suggest that business leaders do not always fulfil the expectations of wider society.

It may therefore come as a surprise to learn that company directors do not have a formal code of conduct which guides their behaviour as a professional group.

A code of conduct is common in other professions, such as accountancy, medicine and the law. It is seen as an essential feature of their professional framework and a key source of accountability.

Given that directors are just as important for the economy and society as other professionals, the IoD believes that an important missing element in our current business framework is a code of conduct for directors.

Such a code would reflect and embed the expectations of wider society vis-à-vis the business community. It would be an opportunity to articulate desired behaviours with respect to climate change, diversity and business purpose as well as more traditional expectations around competence, lawfulness, independence and confidentiality.

The IoD’s vision is for board members from all UK entities to sign up to a government-supported code on a voluntary basis. By committing themselves to the code, directors would signal their willingness to apply high ethical and behavioural standards in their governance and leadership activities. They would also agree to submit themselves to any accountability processes associated with the code.

Business takes the lead

Although the code would be supported by government, it would be operated by the business community rather than by a regulator or government department. Such an initiative would enable the government to demonstrate its commitment to meaningful governance reform. At the same time, it would encourage business itself to take the lead in addressing societal concerns relating to business behaviour.

The idea of a code of conduct for the director community is strongly supported by the IoD’s members. In a members’ survey conducted in May 2022, 78% of respondents agreed that directors should be subject to a code of conduct—either on a mandatory or voluntary basis.

In our view, a voluntary code—albeit one that is recognised and supported by government, institutional investors and other stakeholders—would be the right way to define standards for directors without adding to the overall burden of business regulation.

Our initial thinking is that all signatories to the code could appear on a publicly viewable register. In addition, signatories could be encouraged to disclose their commitment to the code in the annual report of their entities, such as through an appropriate kitemark. A whistleblowing process could also be established to allow the reporting of poor conduct, and an appropriate investigations and sanctions process would also need to be defined.

Codes of conduct and governance codes

It is important to note that a code of conduct for directors is something distinct from a corporate governance code (such as the UK Corporate Governance Code) or the general legal duties of directors under the Companies Act 2006.

A governance code describes best practices relating to the structure, composition, activities and functioning of the board of directors as a whole. In addition, governance codes typically only apply to large, listed companies. They are not primarily focused on articulating high-level principles of individual conduct and behaviour which individual directors should embody in their behaviour.

Directors’ general legal duties are baseline fiduciary responsibilities that directors owe to their respective organisations, and do not speak to many desirable aspects of director behaviour. For that reason, a code of conduct would be complementary to the existing governance code framework and directors’ fiduciary requirements.

We have written to the Secretary of State for Business, Kwasi Kwarteng, and proposed that the government commission a high-level working group to articulate a code of conduct for directors which enjoys the support of a wide range of stakeholders. As the UK’s leading professional organisation for directors, the IoD would be willing to co-ordinate this process.

We hope that the government will lend its support to this initiative. Although a code of conduct is not a silver bullet, we believe that it can play a meaningful role in improving trust in the UK business community and also enhance the professionalism of those who serve as directors.

Roger Barker is director of policy and corporate governance at the Institute of Directors.