Introduction
The Institute of Directors (IoD) recently published a new version of the Code of Conduct for Directors. The IoD is a British professional organization for company directors, senior business leaders, and entrepreneurs. Established in 1903, it is the longest-running organization for professional leaders in the UK. Approximately 75% of FTSE 100 companies have an IoD member on their board or in a senior management role.
The voluntary Code of Conduct is described by the IoD as a practical tool to help directors make “better choices.” It represents a voluntary commitment by directors and their organizations to support and foster a positive organizational culture, ethics, and integrity.
This article compares the IoD Code with the Dutch Corporate Governance Code 2022 (NCGC). The comparison focuses solely on relevant governance aspects related to ESG objectives.
Comparison
Sustainability and ESG (Environmental, Social, Governance) have become critical focus areas in corporate governance. As noted, we compare ESG-related guidelines from the NCGC and the IoD Code of Conduct for Directors 2024 (IoD Code). Both codes provide governance frameworks but approach the subject from different cultural and legal contexts.
The NCGC applies to Dutch listed companies and has a “comply or explain” character. The IoD Code, on the other hand, is voluntary for directors and organizations affiliated with the IoD.
1. Sustainable Value Creation
The NCGC emphasizes the importance of long-term sustainable value creation (Chapter 1.1). Directors are expected to develop strategies that consider social and environmental impacts, based on “People, Planet, Profit.” It highlights double materiality: how the company influences sustainability and how sustainability influences the company.
The IoD Code addresses the principle of Responsible Business. It encourages directors to integrate ethical and sustainable business practices into their decision-making, with explicit attention to broader societal and environmental impacts.
Comparison
Both codes stress the importance of sustainability, but the NCGC includes more specific requirements, such as mandatory reporting on sustainability effects. The IoD Code is less detailed but strongly focuses on ethical behavior by directors.
2. Risk Management and Governance
The NCGC extensively addresses risk management, including identifying ESG-related risks such as climate change and social inequality. Directors are required to implement adequate internal control systems and evaluate them regularly.
In the IoD Code, risk management is embedded within broader principles of responsibility and transparency. Directors are encouraged to manage risks responsibly and to avoid prioritizing short-term shareholder profits over long-term resilience.
Comparison
The NCGC offers more concrete guidelines on managing ESG risks, while the IoD Code emphasizes ethical principles that influence risk management.
3. Stakeholder Engagement
The NCGC explicitly requires companies to develop policies for effective dialogue with stakeholders, including the involvement of employees in decision-making.
The IoD Code highlights the importance of transparency and open communication with stakeholders, including mechanisms such as speak-up policies to report misconduct.
Comparison
While both codes value stakeholder engagement, the NCGC places more emphasis on structured and strategic dialogue, whereas the IoD Code focuses more on ethical behavior and transparency.
4. Diversity and Inclusion
The NCGC mandates a diversity policy with concrete goals for gender equality and other diversity aspects.
In the IoD Code, diversity is addressed under the principle of Fairness. Directors are encouraged to promote inclusive cultures where everyone feels valued.
Comparison
The NCGC provides stricter and measurable guidelines for diversity, while the IoD Code adopts a broader behavioral approach.
Conclusion
Both codes emphasize the importance of ESG principles in governance but approach the subject differently. The NCGC offers detailed, legally anchored guidelines focusing on implementation and reporting. The IoD Code, on the other hand, centers on the behavior and ethics of individual directors. Together, these codes provide valuable frameworks to support directors in fostering sustainable and responsible enterprises.
If you would like to know more about good governance and ESG, feel free to contact Mathijs Arts or Patrycja Chelmiak.
