More than half the members on the Isles of Scilly Council did not disclose their shareholdings in an airline that gained from the surfacing and extension of the runway at St Mary's airport, which serves the 2,000 inhabitants.
The local government ombudsman issued a report saying the shortcomings amounted to maladministration. He criticised the council for failing in its obligation to prepare a study of the runway's environmental impact on the islands, designated an Area of Outstanding Natural Beauty.
The authority's former chief executive, who resigned in January owing to ill-health, was also singled out for not declaring a shareholding and failing to give clear advice to councillors.
St Mary's airport, opened in 1949, had three grass runways and was under pressure from the Civil Aviation Authority, which was threatening to close one runway because of the unsatisfactory surface. At three council meetings - in March, April and June 1990 - members narrowly decided to allow a plan to pave 600m (2,000ft) of the runway, with an extension of another 120m (400ft) to enable larger aircraft to land. But 11 of the council's 21 members had not revealed they were shareholders of the Isles of Scilly Steamship Company, of which the Skybus airline is a wholly-owned subsidiary. The company, which flies two aircraft year-round between the islands and Land's End, accounts for almost 30 per cent of the steamship company's turnover.
Local government legislation demands that members must disclose any pecuniary interest and take no part in voting or discussion on the matter once that is done. The restriction may be lifted if the value of the shareholding does not exceed pounds 5,000, though the member is still duty-bound to disclose the interest.
Ten of the 11 councillors criticised held only a small number of shares in the company and would have been entitled to discuss and vote on the proposal had they declared their interest. However, an eleventh, with his wife, held more than the permitted level of shares and was automatically barred.
Frederick Laws, the ombudsman, pointed out that three of the 11 voted against the proposal at all three meetings and could not be accused of acting in their own interests, though this did not free them from their legal obligations.