IoD Code of Conduct for Directors – will this win back public trust in business practice?

Following myriad scandals such as the Horizon IT Post Office scandal, which has been identified as the most widespread miscarriage of justice ever seen in British legal history, the Institute of Directors (IoD) has responded to the palpable loss of public trust in businesses and business practices by creating a Code of Conduct for Directors.

The Code of Conduct is a behavioural framework, which has been structured around the ‘Nolan Principles’ (also known as the Seven Principles of Public Life), with six key principles each with a series of ‘undertakings’ outlining their implementation. This Code is intended to be adopted voluntarily and was drafted “by directors for directors”; rather than as a new set of obligations, it is written to be read alongside the statutory duties of a Director.

The Principles

As it stands, a major criticism of the well-meaning Code of Conduct is that, without consequences or even a visible list of signatories, it functions primarily as a one-off PR exercise. For first-time directors, having an outline of the ‘good behaviour’ that the public now expects is certainly advantageous, but unfortunately the public’s confidence has been primarily shaken by industry giants. So far, there is nothing here that will mitigate existing concerns, which has been echoed by the Institute of the Chartered Accountants in England and Wales (ICAEW); they further point out that their members are already covered by ICAEW’s Code of Ethics.

Lord McNicol describes the Code as “matters of common sense”, which only begs the question; if ‘professional’ directors are already being held to standards by their respective regulators, and this Code is intended to outline “common sense” behaviours to complement statutory law, who is this non-binding, voluntary Code really for – and if they require this much hand-holding, should they have been appointed at all?

The Code itself is also vague at points. The use of language such as “inclusivity”, “setting a high bar” and “ethical” are at risk of being open to personal interpretation, and the Code does not provide any further guidance. Though each Principle is underpinned by certain ‘undertakings’, which intend to paint a clearer picture, the use of ‘undertaking’ implies a legal obligation. However, the Code is non-binding and therefore there is neither any obligation to comply nor any consequence for breach of this standard.

The now-concluded public consultation has asked many of the same questions and so it will be interesting to see what, if anything, changes. As it currently stands, the Code seems to be an exercise in good intentions, but it is at least a clear acknowledgment from the IoD that directors, businesses and companies need to do better.