For all the carrying on, mostly by Michael and a little by Santino, Tom Hagen was never truly out as consigliere.
When Vito named him to succeed Genco, I believe Santino may have had reservations ("Pop had Genco look what I've got," and "No more telling me how to patch things up"). So did Michael even before he got into the family business ("He's not a Sicilian").
It is true that Michael told Tom he was out and was only going to be the family's lawyer in Vegas, and there was a scene in II in which Michael asked Tom to leave the room when he spoke with Johnny Ola.
In fact, however, Tom played a pivotal role in every single major move Sonny and Michael ever made. He was a critical player in the planning and execution of the killings of Sol and McK...he planted the stories with the press, and probably made the arrangements to get Michael to Sicily. After Michael returned, Tom knew he was building a secret regime (according to deleted scenes, anyway) and even though Michael said to him "You're out," he never really was. The proof of this was at Vito's funeral, BEFORE Michael had made a single move, he asks Michael "Do you know how they're gonna come at you?" And he says he always thought it would be Clemenza who would betray the family, not Tessio. Michael tells him his plan outright...he's going to wait until after the Baptism before he makes his move on all the heads of the five families. Then, in the execution of this, Tom is instrumental in setting Tessio up for his last car ride, and he is very much a part of Michael's interrogation and killing of Carlo. He is also involved deeply in compromising Senator Geary, in getting Frnkie's brother to the Senate hearing, and eventually talking Frankie into killing himself.
How do we reoncile this? Easy. Michael, the great manipulator, understood like Vito that Tom was not a bad consigliere, but he never wanted Tom to know that was what he thought. Instead he played on Tom's almost fanatic wish to be thought of as a "real brother" to keep him feeling threatened with being pushed out of the inner circle, if only to have the total control of everything that he craved. Accordingly, from time to time he would insult Tom, send him out of the room, tell him he was "out" and so forth, but if actions speak louder than words, Tom never left the inner circle and was always the consigliere for better or worse.
