Nolan Principles vs. Fiduciary Duty: Insights for Public and Private Sector Leaders

With the UK Government introducing a fresh version of the Ministerial Code, it’s a good time to explore how this code measures up against the duties of directors under the Companies Act 2006. Leaders in both public and private sectors are in positions of immense trust and responsibility. In the UK, public officials follow the Nolan Principles, while private sector directors are bound by fiduciary duties laid out in the Companies Act. While these standards serve different purposes, they both highlight the importance of ethics, accountability, and integrity. Let’s take a closer look at what each framework entails – and what happens when these responsibilities aren’t upheld.

Getting to Know the Nolan Principles

First, there’s the set of seven Nolan Principles established back in 1995. These principles – Selflessness, Integrity, Objectivity, Accountability, Openness, Honesty, and Leadership – were created to keep public sector leaders focused on ethical behaviour, acting in the public’s best interest, promoting transparency and trust. These principles aren’t legally enforceable, but they’re powerful in setting expectations. For ministers, adherence to the Ministerial Code, guided by these principles, often comes under media and public scrutiny.

Understanding Fiduciary Duty

In the private sector, directors have something different but equally serious: fiduciary duty. Directors are expected to act in the company’s best interests, and in turn, in the interests of its shareholders and stakeholders. Fiduciary duty in the UK is formalized under the Companies Act 2006, and includes duties such as acting within powers, avoiding conflicts of interest, and promoting the company’s success. Unlike the Nolan Principles, fiduciary duties are enforceable by law.

Frameworks for Ethical Behaviour

Though they’re different, both the Nolan Principles and fiduciary duty aim to guide leaders toward ethical behaviour. The Nolan Principles focus on public good, pushing public officials to act openly and with the public’s trust at heart. Fiduciary duty, on the other hand, is more focused on company success and shareholder interests. This difference is important. In the public sector, there’s an expectation to serve society, while in the private sector, the priority is the financial and operational success of the company.

The way breaches are handled also varies. In the public sector, consequences often revolve around political accountability – public scrutiny, parliamentary questioning, or resignation if things get serious. For private sector leaders, fiduciary breaches carry legal weight, leading to disqualification from directorship roles, fines, or, in extreme cases, criminal prosecution. Each framework is designed to keep its leaders accountable in ways that reflect their unique responsibilities.

Impacts of Breaching Trust

A breach of the Nolan Principles doesn’t just hurt the individual – it can erode public trust and weaken the confidence people have in government institutions. The harm is often collective, affecting how society views the public sector as a whole. In the private sector, fiduciary breaches tend to have immediate financial impacts. Poor governance can shake investor confidence, damage shareholder trust, and, in some cases, harm the company’s financial standing. Both types of breaches matter, but the damage plays out differently.

Lessons for Leaders in Each Sector

There lessons for leaders in each sector that can be learned from the other. Public sector officials might consider private sector strategies such as performance metrics and strategic risk management to drive accountability and efficiency. By focusing on the long term, public leaders can make sure their initiatives have sustainable impacts, just as fiduciary duty asks of corporate leaders.

On the flip side, private sector directors could benefit from the Nolan Principles’ emphasis on openness and selflessness. A commitment to transparency builds trust with stakeholders, and when leaders act selflessly, it shows they’re willing to put the company’s broader interests above personal gain. This kind of trust is crucial for lasting company growth.

Setting a Standard of Ethical Leadership

At the end of the day, both the Nolan Principles and fiduciary duties are about stewardship and the ethical use of power. They remind us that leadership is as much about character as it is about competence. A cross-sector approach that values transparency, loyalty, and accountability could strengthen both public and corporate governance. In today’s interconnected world, a unified commitment to ethical behaviour is more important than ever. Public and private sector leaders alike benefit from reinforcing trust and responsibility in their actions.

Reflections on Accountability

It’s one thing to admit a mistake – it’s another to take meaningful accountability.

We have a current situation in the Church of England, which has been suffering a period of revelations about child abuse, suggesting failures systemic failures at an institutional level. A recent report – part of its strategy for dealing with this – has revealed that the Archbishop of Canterbury and a list of other bishops were not only guilty of covering a serial abuser for more than a decade but colluded with continued child abuse by the perpetrator in South Africa. So far, the Archbishop has resisted calls to resign; apologies and expressions of regret are not enough. Compare that with Lord Carrington, the former Foreign Secretary, who resigned in 1982 after the Falklands invasion, taking full responsibility for the Foreign Office’s lack of foresight.

If the Archbishop and all the bishops implicated were to resign quickly and willingly this would be a symbolic act of leadership and a message to the institution and those affected that commitment to change is serious.

Richard Winfield is a thought leader with a particular interest in public transport, social policy and corporate governance. He is the author of The New Directors Handbook, creator of The Essential Directorship and Strategic Company Secretary masterclasses and curator of the CPD 2.0 Professional programme, which provides a stream of governance alerts and management insights.

With a successful career as a consultant, coach, facilitator, and trainer, he works internationally with individuals and teams at board level. He assists clients in bringing structure and clarity to their thinking.

Richard helps directors and boards become more effective by clarifying goals, improving communication and applying sound corporate governance.

For individuals, he facilitates their career advancement by helping them clarify their life goals, discover forgotten or ignored talents and by developing a comprehensive package to raise their profile and break through barriers. He then provides editorial support for job applications and prepares them for interviews. https://threeticks.com/dream-job-guide

Clients approach Richard to help bring structure and clarity to their lives.

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