Code of Conduct for Non-Executive and Supervisory Directors

Abstract

After the corporate scandals at the beginning of the new millennium, corporate governance codes were drafted and implemented in national laws and regulations. Unfortunately, due to an ongoing supply of new financial scandals and societal deceptions, our society increasingly distrusts executive directors, non-executive directors and supervisory board members, as they often appeared to play a significant role in these scandals. Non-executive directors (NEDs) and supervisory directors (SDs) are often accused of having overlooked the important issues in their supervising role or having failed to intervene in company decision making. Previous research has shown that many NEDs and SDs operate on the basis of their own unwritten rules, which may very well be different from those of their colleagues. In this article we examine whether and how a code of conduct or code of ethics might help to further clarify how NEDs/SDs should act. We also investigated the views of NEDs/SDs themselves. It appears that current corporate governance codes are not sufficient to guide directors on behavioral aspects of their supervisory role. This article shows that a code of conduct could provide this guidance to NEDs/SDs on several issues. First, a code of conduct would compel the Supervisory Board to reflect on its own values. Second, it would compel NEDs/SDs to verbalize their unwritten rules. The results may be applied internationally and could have relevance to the experience of executive directors in addition. This article may serve as a discussion document for other jurisdictions in addition.