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Michigan law imposes some clear standards and other less-defined standards of conduct for township officials. Violations of these standards of conduct may have civil or criminal consequences. Adhering to these standards of conduct can avoid political turmoil, legal proceedings and civil or criminal liability.

Newspaper headlines sometimes highlight public board members doing wrong, injuring the public or creating the appearance of impropriety. Consider these real-life scenarios:

• A citizen involved in litigation with the township wins election as a township trustee, and then votes in favor of stopping the litigation, instead of abstaining from the vote.
• A trustee’s husband is being considered by the board as a township employee, and the trustee votes on his appointment instead of abstaining.

In some instances, an action of a board member constitutes a conflict of interest and breach of an ethical obligation; not many people would disagree with the position that a board member should not be voting on decisions relating to litigation to which he or she is an adverse party. Other situations, such as participating in a vote related to the hiring of a family member, may have the appearance of impropriety, but are not necessarily a legal conflict of interest.

Township Officials’ Fiduciary Duties

Michigan’s ethics code is reflected in our state constitution’s oath of office, which requires all township board members to swear under oath to faithfully discharge the duties of their office. This is a “fiduciary duty” owed to “all members of the public.” Similar to an agent for a corporation or a trustee of an estate, a township board member’s fiduciary duties require “fair dealings and disinterested conduct.” But what exactly is a township board member’s fiduciary duty? At the most basic level, it includes a duty of loyalty and a duty of care.

Duty of Loyalty

The duty of loyalty is inherent in administering township governance. This duty requires members to avoid conflicts of interest, self-dealing, and exploiting township information or transactions for personal gain. The duty is codified in various statutes.

A 1975 attorney general opinion explains that a conflict of interest arises when the “personal interest of a public official places him in a position where he cannot execute his public duties without affecting his private interests, thus denying the public the fair, impartial and objective judgment to which it is entitled.” MCL 15.183 prohibits an officer from holding two public offices when that would cause a breach of duty such that the “dual holding of two public positions prevents a person from protecting, advancing or promoting the interests of either position.” For example, since a township board member’s principal loyalty lies with the township, a conflict occurs when the township board must establish employee compensation for a local court where one board member works.

The duty of loyalty prohibits self-dealing and voting on decisions where a member will personally gain from the outcome. MCL 15.342 incorporates facets of the duty of loyalty by prohibiting all the following:

• Disclosing confidential information acquired in the course of serving the township before public disclosure is authorized by the board.
• Personally benefiting from the knowledge or use of confidential information.
• Using township resources, property and funds for personal gain or benefit.
• Negotiating or executing contracts, making loans, or issuing permits if the individual involved has a financial interest with a board member.

The Michigan Department of Treasury’s Accounting Procedures Manual encourages each township to address similar ethical principles in a written policy.

Duty of Care

In addition to avoiding self-dealing and conflicts of interest, each board member has a duty of care that requires them to act in good faith and with reasonable care in managing the township. This includes, but is not limited to, fulfilling the statutory duties of the member’s specific office (clerk, treasurer, and supervisor), attending meetings and casting informed votes on all decisions before the board.

Absence from meetings should not be taken lightly. The Charter Township Act even permits a township board to “compel” the attendance of board members and other officials, and makes the failure to appear after such summons “misconduct in office.” MCL 42.7. Board members must also be knowledgeable of the substantive information presented to the board as well as the procedural and statutory requirements for hearings, publication and posting.

Breach of Duty

Breach of a board member’s fiduciary duties can expose the member and the township to significant liability. A breach of duty may require that certain self-interested transactions be rescinded, or that the member disqualify himself from voting on the issue in the first place. When a member holds another office that is incompatible with his or her current office, the only way to avoid a breach would be to vacate one of the offices, since voting on a question may violate the duty of loyalty, but not voting on the question may violate the duty of care. 

Under some circumstances, a township suffering a financial loss from a board member’s breach can seek recovery from that member’s bond. Township boards should review current bond amounts and determine whether they are sufficient. Will the bond cover the cost of an accountant to assist with payroll? What about the cost to contract for election services if the clerk is unable or unqualified to discharge the election duties?

Transparency regarding self-interest, conflicts, attendance at meetings and votes are also central to the Open Meetings Act and the Freedom of Information Act, which permit public scrutiny of members’ official actions.

Several criminal statutes impose criminal fines and imprisonment for willful neglect of duty, false financial statements or documents, embezzlement, false statements of public finances, illegal expenditures, using public funds for non-public purposes and abuses of public records custody. In addition to the obvious criminal violations, there can be criminal liability for breach of a member’s duties, including:

• Willful neglect to perform a statutory duty (i.e., ordinance publication and taking minutes). MCL 750.478.
• Publication of any false statement, checks, drafts, warrants or vouchers relating to the finances of the township. MCL 750.489.
• Commingling of township funds with personal money. MCL 750.490.
• Purchase of goods with township funds for any use other than official township business. MCL 750.490a.
• Failure to furnish township records for at least four hours per day during normal business hours. MCL 750.492.

Some of these violations are punishable by up to 1 year imprisonment and a $1,000 fine.

Conclusion

Township board members must observe their fiduciary duties to the Township and the public, including the duty of loyalty and the duty of care. But the breadth and depth of these duties are much greater than many officials know or assume, and are comprised of multiple statutes, Attorney General Opinions and court cases.

Effective township governance is requires adherence to the ethical requirements provided by law and the faithful exercise of each board member’s duty to manage township business. Townships are well-advised to invest in training their officials and preparing comprehensive ethics policies. The Michigan Township Association’s model ethics policies and board member code of conduct are great resources for starting the discussion.

By: Bill Fahey, Chris Patterson and Steve Koski

Click here for a PDF version of this publication.

Fahey Schultz Burzych Rhodes PLC, Your Township Attorneys, is a Michigan law firm specializing in the representation of Michigan townships. Our lawyers have more than 150 years of experience in township law, and have represented more than 150 townships across the state of Michigan. This publication is intended for our clients and friends. This communication highlights specific areas of law, and is not legal advice. The reader should consult an attorney to determine how the information applies to any specific situation. 

Copyright © 2015 Fahey Schultz Burzych Rhodes PLC