22 MAY / JUNE 2021 Interviewing a Candidate Who breaches fiduciary duty COMPLIANCE CONNECTION Brett J. Ashton Partner Krieg DeVault LLP bashton@kdlegal.com Charles O. Richert Associate Krieg DeVault LLP crichert@kdlegal.com Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association. Question: For our chief lending officer position, we recently interviewed a candidate who currently serves in the same position at our largest competitor. In the interview, the candidate voluntarily disclosed several facts about the strategic plan of his current bank, and discussed how he could assist our bank in pursuing similar strategies to compete. While the candidate has great ideas, should we be concerned that he may be breaching some kind confidentiality requirement with his current bank that could create a problem for our bank if we hire him? Answer: Yes. While on the surface it may sound beneficial that the candidate is sharing potentially confidential information from your competitor, you are right to be concerned that this may not be information he should be sharing, or that your bank should be using. If this individual is an officer of the competitor bank, Indiana law imposes certain fiduciary duties on actions while serving in that role. These obligations include, but are not limited to, the three fiduciary duties imposed on officers and directors of any Indiana corporation: good faith, care and loyalty. To prevail on a claim for breach of fiduciary duty in Indiana, a plaintiff must show: “(1) the existence of a fiduciary relationship; (2) a breach of the duty owed by the fiduciary to the beneficiary; and (3) harm to the beneficiary.”1 It is a breach of duty when officers divert corporate assets or opportunities for their own personal gain, or fail to act in the best interest of their corporations. If the chief lending officer candidate is disclosing confidential information about your competitor, these actions would certainly appear to breach his duty This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. 1 Good v. Indiana Tchrs. Ret. Fund, 31 N.E.3d 978, 983 (Ind. Ct. App. 2015) 2 Case details available at: federalreserve.gov/newsevents/ pressreleases/files/enf20210330a1.pdf. of loyalty to his current employer/your competitor bank that is not in that bank’s best interests. Further, if you hire this candidate and pursue the goals he has disclosed, the competitor bank may argue that you did so intentionally. While these issues rarely attract the attention of regulators, recently the Federal Reserve Board of Governors issued a prohibition order against two Wyoming bankers for similar activities to those you describe.2 In that case, the individuals both worked for Central Bank and Trust in Lander, Wyoming, before switching to another Wyoming bank, Farmers State Bank. The two bankers invested in Farmers while still working at Central and leveraged contact lists and other confidential information from Central during their transition to Farmers. The Board found that both bankers violated state and federal law, including breach of fiduciary duty and participating in unsafe and unsound banking practices, and permanently banned them from participating in any activities within the industry. In sum, think twice before hiring someone who breaches fiduciary duty to their current bank. Not only could this individual face civil liability for breaching fiduciary duty, but they may also attract unwanted attention from regulators. Further, while it is your competitor being harmed with the indiscretion today, it could be your bank’s harm tomorrow if you hire this candidate … who may later interview with another bank. HB
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