Code of Ethics for Board of Directors

imageMany so called good companies have a code of ethics and conduct for their employees and stop short of acknowledging if it applies to the Board of Directors. It is normally camouflaged with a compliance statement by the staff. Directors may say that no code or policy can anticipate every situation that may arise in their sacred role of protecting all shareholders. Though some people may say “something is better than nothing”, others may say “nothing, is better than just having something in a code!”

Why Bell the Cat…..

Why is that Directors are not required to comply with a code? Is this because;

Directors will not do anything that is wrong?
Directors like parents are selfless and give so much to the company without expecting anything in return?
Directors are naturally ethical and honest?
Directors need no guiding principles as they know everything?
Hence, why would they listen to Socrates who said “The only true wisdom is in knowing you know nothing.” Anyway, if innocent shareholders and ignorant regulators wanted directors to conduct themselves in what is generally called “good” behavior, the following guidance may be useful.

How to Bell the Cat…..

Members of the board (including ex officio, independent, nominee or consultant members of the board) should be required to abide by and conform to the following dozen (brief) principles of code of ethics & conduct in their capacity as board members:

  • Must observe the highest ethical standards and act with integrity and honesty to promote an environment of fairness and respect to all;
  • Avoid conflicts of interest in business, financial or other direct or indirect relationships with the interests of the Company or which divide his or her loyalty to the Company;
  • Do not abuse board membership by improperly using board membership or company resources, or property for personal or related party gain or pleasure;
  • May not compete with the Company by providing service to a competitor, use confidential Company information for his or her own gain;
  • May not solicit or accept gifts, payments, loans, services or any form of compensation from suppliers, customers, competitors or others seeking to do business with the Company;
  • May not take unfair advantage of any person, staff or third parties dealing with the company, through manipulation or misrepresentation;
  • May provide goods or services to the company as a vendor only after full disclosure and pre-approval by the board, and pursuant to any related procedures adopted by the board;
  • Must comply with all applicable laws, rules and regulations of the country, and use all reasonable efforts to oversee compliance by employees and Directors;
  • Must keep confidential any important information about the Company that has not been disclosed to the public;
  • Shall protect the Company’s funds, assets and information and shall not use them to pursue personal opportunities or gain;
  • Make his or her best efforts to regularly participate in professional development activities and perform his or her assigned duties in a professional and timely manner;
  • Shall not violate insider trading rules or use privileged information for personal investment decisions.

Reporting Violations

If a Director believes there has been a breach of the Code he or she must promptly report this to the Chairman of the Board and the Company Secretary. Any alleged breach of the Code should be reported to the Chairman of the Audit Committee or the Chairman of the Nominating & Corporate Governance Committee, as well.

The Board should review and investigate any reported breach of the Code, without the participation of the Director who may be the subject of the report. If the Board determines that a violation occurred, appropriate remedial or disciplinary action must be taken.

Communication with Shareholders

Annually, each Director must sign a certificate of compliance with the Code to be presented at the annual general meeting, for reappointment.

I will have to conclude this blog post with the question “Who will Bell the Cat?”

About surenraj

“Views expressed are my own”
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