Our trust department has a trust committee that holds regular meetings. The committee has hired an attorney to attend committee meetings to serve as a “trust consultant” on issues facing the committee. Does this create a conflict of interest for our bank? Should we disclose this relationship in our meeting minutes? The attorney is not a member of the committee and has no voting privileges. However, he is compensated for attending the meetings, as are all committee members. His suggestions sometimes lead us to hire him for legal work. We want to be sensitive to potential conflicts, but he is one of the only expert trust attorneys in this geographic area, and our committee values him as a consultant.

In our view, using the attorney as a “trust consultant” by itself does not pose a problem for your bank, provided that he continues to refrain from the trust committee’s voting process. However, because the attorney also provides legal advice on individual trust matters for the bank, we believe that he could (and perhaps should) be viewed as also serving in the role of trust counsel when he is providing advice to the trust committee.

Clarifying that the attorney is serving as the bank’s trust counsel when he is providing advice to the trust committee should not raise conflict of interest issues, provided that he only represents the bank, and not the bank’s customers, when he also is engaged by the bank on individual trust matters. Meanwhile, his fee arrangement for attending trust committee meetings can be structured differently than when he is billing on individual matters; in other words, his fee for attending trust committee meetings as trust counsel could be fixed by agreement at the same amount that he already receives for attending the meetings under the rubric of a “consultant.”

Aside from those considerations, from the bank’s point of view, we believe that continuing to use this individual as a “trust consultant” would be permissible, if your bank were to choose that route. Although the OCC is not your primary regulator, it has published helpful guidance on using consultants. In the context of bank boards, it is permissible to leverage outside expertise through the use of “advisory directors” — individuals who “provide information and advice but do not vote as part of the board.” Based on the information you have provided, it sounds as if your trust committee is using the “trust consultant” in precisely this way — obtaining his information and advice, but excluding him from voting.

Because of their limited role, an “advisory director” (or in this case, a “trust consultant”) generally is not liable for board (or committee) decisions. However, such an individual could face liability for a particular decision based on the facts and circumstances of the situation, including (among other considerations) whether they “exercised significant influence on the voting process.” In light of the fact that this individual also provides legal advice to the bank on trust matters, the question of liability could become murky for the attorney when trying to parse “consulting” from legal advice.

Accordingly, while we believe that using the attorney as a “trust consultant” for your trust committee is permissible, we would recommend characterizing his role with the committee (by agreement with him) as your bank’s trust counsel.

For resources related to our guidance, please see:

OCC Comptroller’s Handbooks, Corporate and Risk Governance, pg. 8 (“Although qualified consultants can provide needed expertise and counsel, the board should ensure that no improper conflicts of interest exist between the bank and the consultant so that the board receives only objective and independent advice. To leverage outside expertise, the board may consider using advisory directors. These individuals provide information and advice but do not vote as part of the board.”)

OCC Comptroller’s Handbooks, Corporate and Risk Governance, pg. 8 (“The bank may use advisory directors in a number of situations, including . . . to gain access to special expertise to help the board with planning and decision making . . .”)

OCC Comptroller’s Handbooks, Corporate and Risk Governance, pg. 8-9 (“Because of their limited role, advisory directors generally are not liable for board decisions. The facts and circumstances of a particular situation determine if an advisory director may have liability for individual decisions. Factors affecting potential liability include • whether advisory directors were elected or appointed. • how corporate documents identified advisory directors. • how advisory directors participated in board meetings. • whether advisory directors exercised significant influence on the voting process. • how the bank compensated advisory directors for attending board meetings. • whether the advisory director had a previous relationship with the bank. Additionally, an advisory director who, in fact, functions as a full director may be liable for board decisions in which he or she participated as if that advisory director were a full director. Individuals cannot shield their actions from liability simply by having the word ‘advisory’ in their titles.”)

FDIC Supervisory Insights, Special Corporate Governance Edition (April 2016), pg. 13 (“The board should ensure that all major operational areas and activities are covered by clearly communicated policies that can be readily understood by all employees and that are appropriate for the bank’s size. The Pocket Guide indicates that specific policies should include, at a minimum: . . . Conflicts of interest . . .”)