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January 2014

Recognizing Fiduciary Responsibilities

 Each year during the months of January and February, ASCE hosts a series of seminars for the leaders of sections, branches, and younger member groups. These multiregion leadership conferences are designed to provide our present and future leaders with knowledge and resources that will help them grow as leaders and better serve the membership. A frequent question at these events is: What does it mean to have a fiduciary duty? This month’s column discusses fiduciary duties and shows how they come into play not only within the context of volunteer leadership but also in many other professional and personal settings.

 The term “fiduciary duty” is a legal concept describing situations in which a special relationship of trust is deemed to exist between two parties: a person who has offered his or her expertise and prudence and the individual or entity relying on that expertise. A fiduciary relationship represents the highest duty of care recognized in the American legal system and requires that the individual who serves as the fiduciary act primarily for the benefit of his or her beneficiary in matters related to that role, even when such actions run counter to the fiduciary’s personal interests.

 Because of this high standard of obligation, courts have limited the types of circumstances defining a fiduciary relationship. The relationship between employer and employee is generally not considered to be a fiduciary relationship, except in cases involving a high level of leadership or when other special obligations arise. Such professionals as attorneys, accountants, and business or financial advisers are typically held to have fiduciary duties to their clients, but courts have been less willing to recognize a fiduciary relationship between engineers and their clients or employers.

 That fact notwithstanding, it can be argued that the recognition and understanding of fiduciary duties are important elements in an engineer’s professional development. In the first place, over the course of an engineer’s professional life, he or she may take on any number of roles that give rise to fiduciary duties. An engineer may take a corporate position as a director or trustee; may serve as the executor of an estate or be given a family member’s power of attorney; or may take a volunteer leadership role in a civic group, homeowners’ association, or professional society. Second, a careful reading of ASCE’s Code of Ethics reveals numerous areas of overlap with traditional fiduciary responsibilities, suggesting that an engineer may have “fiduciary-like” ethical obligations to employers, customers, and the public at large, even in the absence of a legally binding fiduciary relationship.

 Fiduciary duty is traditionally considered to comprise two main duties: the duty of care and the duty of loyalty. The duty of care requires a fiduciary to act in good faith and to use the same degree of care, skill, and diligence that a reasonably prudent person would exercise in similar matters on his or her own behalf. This does not mean every decision made by a fiduciary must be the correct decision, only that the fiduciary must act responsibly in making decisions on the basis of an informed judgment and with the goal of best meeting the beneficiary’s objectives. In a volunteer leadership setting, this includes regularly attending board or committee meetings, reading reports or other materials so that decisions are made with a thorough understanding of issues, and keeping accurate records and other documentation.

 While there is no provision within ASCE’s Code of Ethics explicitly requiring engineers to demonstrate “care, skill, and diligence,” there are numerous provisions relating to the care that an engineer must exercise in his or her professional activities. Canon 2 and its supplemental guidelines require engineers to practice only in areas in which they are “qualified by education or experience” and to approve plans only when they have been reviewed or prepared under the engineer’s supervisory control. Canon 3 reminds engineers that professional reports and statements must be objective and truthful, must include all relevant information, and must be based on adequate knowledge, competence, and “honest conviction.” Finally, canon 1 and its guidelines remind members that the “lives, safety, health, and welfare of the general public” are dependent upon the judgment of engineers and that the engineer’s obligation to the public welfare is “paramount.”

 The second fiduciary duty is the duty of loyalty, which refers to the fiduciary’s obligation to act solely in the interest of the beneficiary and to practice fair dealing in all activities relating to the fiduciary role. In a board setting the most common situation touching the duty of loyalty arises when a member has a conflict of interest, that is, a personal or professional interest that may be different from or in opposition to the interests of the board. Though it may not always be possible for a fiduciary to avoid conflicts of interest, the obligation of “fair dealing” requires the fiduciary to disclose such conflicts to the beneficiary so that the latter party can act in its own best interests when the fiduciary’s judgment may be compromised.

 With respect to the Code of Ethics, the most obvious corollary to the fiduciary’s duty of loyalty is found in canon 4: “Engineers shall act in professional matters for each employer or client as faithful agents or trustees and shall avoid conflicts of interest.” In cases in which a fiduciary abuses his or her position of trust to secure a competitive advantage, such activity may also contravene canon 5’s strictures on unfair competition.

 In a board or corporate setting there is often understood to be a third fiduciary duty: the duty of obedience. Broadly speaking, this requires the fiduciary to act in a manner that is consistent with the goals, mission, policies, and governing principles of the organization and not to take any action that would threaten the organization’s existence or status. While the language of ASCE’s code does not directly address the role of an engineer in preserving corporate integrity, the standards set forth in canon 6 to demonstrate transparency and honesty and eschew fraud and corruption are all consistent with the fiduciary’s duty of obedience to the overall health of an organization.

 Whether serving ASCE as a volunteer leader or acting on behalf of any other person or entity in a position of “special trust and confidence,” it is essential to recognize the important responsibilities you assume. It may therefore be helpful to use ASCE’s Code of Ethics not just in providing engineering services but also in discharging any professional or private responsibility. In this way you will be sure to serve employers, clients, the profession, and the public with “fidelity” in all your activities. —TARA HOKE

Members who have an ethics question or would like to file a complaint with the Committee on Professional Conduct may call ASCE’s hotline at (703) 295-6061 or (800) 548-ASCE (2723), extension 6061. The attorneys staffing this line can provide advice on how to handle an ethics issue or file a complaint. Please note that individual facts and circumstances vary from case to case, that some details may have been altered for purposes of illustration or confidentiality, and that the general summary information contained in these case studies is not to be construed as a precedent binding upon the Society.

Tara Hoke is ASCE’s assistant general counsel and a contributing editor to Civil Engineering.

 

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