Code of Conduct for Non-Executive and Supervisory Directors

Abstract

After the corporate scandals in the 90s, 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 paper we examine whether and how a code of conduct might help to further clarify how NEDs/SDs should act. We also investigated the views of NEDs/SDs themselves. This papers shows that a code of conduct could at least provide guidance to NEDs/SDs on three key 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. Third, it could assist in breaking 'groupthink'.

Keywords: Corporate Governance, Non-executive Directors, code of conduct