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IAI Actuarial Core Principles · Business Finance · Ethical responsibilities of owners and managers

A listed Indian manufacturing company publishes a code of conduct for its directors and senior managers. Which of the following is the main purpose of such a code in the context of ethical responsibilities?

The main purpose of a code of conduct is to set out the standards of behaviour expected from directors and managers, giving a benchmark for judging decisions and conduct. It complements, and never replaces, legal compliance, and it neither guarantees avoiding litigation nor sets remuneration.

  1. ATo guarantee that the company will never face litigation
  2. BTo set out expected standards of behaviour so that decisions and conduct can be judged against stated principlesCorrect
  3. CTo replace the need for any statutory or regulatory compliance
  4. DTo fix the remuneration of directors and senior managers
  5. To maximise short-term profit for shareholders regardless of other stakeholders

Explanation

A code of conduct states the standards of behaviour expected of directors and staff, giving a benchmark against which conduct can be assessed. It supports but does not replace legal compliance, cannot guarantee freedom from litigation, and does not set pay or promote profit at any cost.

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