A new body that would police the directors of major companies and have powers to recommend that they be ‘struck off’ should be established to help rebuild public trust in business, the bosses’ union has told MPs.
Sky News has obtained a submission drawn up by the Institute of Directors (IoD) in response to a report by two parliamentary select committees about the collapse of Carillion.
In the document, which is due to be published on Friday, the IoD calls for the creation of a code of conduct for directors, which board members of companies above an unspecified threshold would be required to sign up to.
Under the IoD proposal, a Professional Standards Board for Directors – which would be business-led – would police the code and investigate cases where a director has failed to adhere to it.
Powers for the new board would range from publicly censuring transgressors to recommending in extreme circumstances to the Department for Business, Energy and Industrial Strategy that they be barred from serving as directors of large companies.
The blueprint is a radical one for an influential business lobbying group like the so-called ‘bosses’ union’ to propose, but underlines the scale of disquiet about recent prominent corporate collapses such as BHS and Carillion.
In its submission, the IoD acknowledges the potential pitfalls of any new regime that adds to business costs and which could deter directors from taking necessary decisions involving an element of risk.
However, it argues that major companies have a responsibility to lead the way in demonstrating effective corporate governance.
“Directors that signed up to such a professional framework would also be required to undertake a targeted programme of continuing professional development,” the submission says.
“We believe that this could exert a positive impact on the capacity of boards to make better decision and enable them to better internalise the requirements of an increasingly complex business and regulatory environment.”
The IoD that such a framework would improve boardroom accountability and shift the role of directors “away from that of ‘gifted amateur’, and more in the direction of competent professional with a practical understanding of fiduciary duties and responsibilities”.
Key details of the IoD’s proposals – including the size threshold for companies subject to the new code, and the range of offences which could lead to censure – would need to be fleshed out and could be the subject of a consultation process, it says.
The collapse of Carillion earlier this year sparked a furious response from MPs, both at directors and those who were responsible for regulating its auditing and pension schemes.
Enormous political pressure has prompted the respective watchdogs to fast-track probes and threaten to hold the construction group’s former directors personally financially liable for its collapse.
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At BHS, the owner immediately before it went bust has been prosecuted, fined and is facing the prospect of a lengthy directorship ban.
The IoD has for years campaigned for better corporate governance following examples of poor practice at Barclays and Sports Direct, although it was embarrassed earlier this year by a bitter row which engulfed its own boardroom and prompted the departure of a string of high-profile directors.