Nearly eight in 10 business leaders feel directors should be subject to a code of conduct to reduce the risk of corporate scandal and company collapses that result in job losses.
The Institute of Directors (IoD) has called on the government to develop a voluntary code of conduct to encourage business leaders to become more accountable for their actions and behaviours, and to commit to a set of principles that will enhance public trust in business.
The body suggested a voluntary approach would be more effective than a heavily regulated regime, which could risk inducing a “counterproductive focus on compliance” and hamper businesses’ efforts to be strategic and innovative.
A survey of almost 600 business leaders in May found that 78% supported the creation of a director code of conduct. This included 58% who felt it should be mandatory for all UK directors and 21% who felt it should be a voluntary decision.
IoD director of policy and governance Dr Roger Barker said: “In the wake of the recent corporate scandals at Carillion, P&O Ferries, BHS and other significant enterprises, there is an understandable demand for business to be held more accountable to wider society. There is a risk that each new corporate scandal or collapse will renew pressure on government to impose prescriptive regulatory obligations relating to directorship.
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“However, a heavily regulated regime for directors runs the risk of inducing a counterproductive focus on compliance which detracts from the capacity of boards to be strategic and innovative. Our paper proposes an alternative, more flexible approach which emphasises individual responsibility and the importance of a business-led solution.
“The IoD’s members are strongly supportive of the introduction of a code of conduct for directors – either on a mandatory or voluntary basis. In our view, a voluntary code – albeit one that is recognised and supported by government – would be the right way to articulate standards for directors without adding to the overall burden of business regulation”.
The IoD’s A voluntary code of conduct policy paper suggests that a set of principles guiding business leaders’ behaviours would encourage modern thinking relating to issues such as climate change, diversity and business purpose.
By committing themselves to the code, directors would signal their willingness to apply high ethical and behavioural standards in their governance and leadership.
The government, regulators, institutional investors and other key stakeholders would be encouraged to endorse the code, and advocate directors to participate.
A whistleblowing process could be established to allow the reporting of poor conduct, with those who fall short of expectations being investigated and sanctioned.
The report calls on the government to form a working group of directors, governance expert and representatives from stakeholders including academics, investors and regulators, to draft a code of conduct and define accountability mechanisms.
The IoD’s proposal follows news that a new regulator will be created to hold company directors accountable for failures in their corporate reporting and audit-related duties.
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Last year, research from Durham University Business School, the University of Sheffield and the University of Northampton found that staff who viewed managers as ‘ethical’ were more likely to challenge wrongdoing in their organisations.
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