British boardrooms should be governed by a new code of conduct setting ethical standards for directors to regain public trust in business, according to the Institute of Directors.
In an unusually strong call for reform in its election manifesto, the UK’s largest and oldest director group is pushing all political parties to create greater controls over corporate governance in their plans for government.
“Public trust in directors and business more generally remains fragile” in the wake of the recent high-profile corporate collapses, the IoD said. “There is an understandable demand for board members to be held more accountable for failures of oversight and direction.”
The IoD also recommended that the government create a new classification of company — a public service corporation — that would have a legal requirement to balance the interest of workers, the supply chain, and other stakeholders alongside shareholders.
The attempt in the manifesto to put social responsibility alongside profit is a marked change in emphasis by the IoD, which has often faced criticism for being slow to modernise even as its membership has receded over the past few years.
“At this election, the spotlight is very much on how businesses are, and should be, run,” said Roger Barker, head of corporate governance at the IoD.
“Too often the debate around capitalism degenerates into simplistic binaries and slogans. We should be more ambitious, and explore new ways to combine the profit motive with social responsibility, to confront the challenges facing the economy, not least climate change.”
The 116-year-old IoD is attempting to reinvent itself for a new generation of directors and move away from a fusty image exemplified by its grand headquarters on Pall Mall. The group’s membership fell about 8 per cent to 29,612 in 2018.
The reputation of the business lobby group took a hit last year after its chair Barbara Judge and deputy chair Ken Olisa resigned following a clash with director-general Stephen Martin over allegations of bullying, racism and sexism. Mr Martin stepped down In January.
The IoD manifesto reflects the growing pressure on companies from investors to improve corporate governance. The interests of business have also taken a back seat in the election campaign as the main political parties focus more on public services and social welfare.
On Tuesday, Labour confirmed it would campaign on a plans for “inclusive ownership funds” that would seize 10 per cent of shares in large companies, alongside its programme of nationalisation and the threat to forcibly delist companies that do not take climate change seriously.
The IoD’s proposals offer legislators a way for business to “regain the trust of wider society while at the same time avoiding an extreme lurch to heavy-handed regulation or outright nationalisation”, the group said.
In a 10-point manifesto published on Wednesday, the IoD is also pushing for stronger rules around how companies report on climate change, and for a government-backed fund to invest in the green economy.
The IoD wants to establish an independent corporate governance commission to oversee the UK’s stewardship framework, and for the next government to deliver proposed reforms to the regulation of auditors.