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Document retention policies can help pare legal bills. (Managing Litigation).

Technological innovations have increased the speed and ease of doing business, so much so that today's employees may never have to leave their computer terminals in order to conduct most of their daily responsibilities. With the click of a mouse, documents, images, and communication can be transmitted across town or across the globe via a single computer modem. According to International Data Corp., an estimated 1.4 trillion messages were sent from businesses in North America in 2000, up from 40 billion in 1995. Ninety-three percent of business documents are now created electronically, and the vast majority of them are never printed.

There are deep-seated differences between e-documents and paper documents, and corporations are bearing the brunt of these differences. For example, 10 years ago, corporations tended not to keep many hard copies because paper documents take up physical space. Now, companies save nearly every electronic document because it can be stored electronically with relative ease.

Furthermore, unlike in the world of paper documents, where data destruction requires an overt act (putting a document in the shredder), electronic data is lost every day in corporate America merely by maintaining the status quo.

A great deal of electronic evidence resides on backup tapes (which are frequently recycled) or on individual hard drives (on which data is altered and overwritten with each use). When litigation ensues, corporations are often ill-equipped to stop backup tape recycling, intentional spoliation or unintentional data overwriting. The barrage of today's corporate scandals offers clear evidence that data destruction often goes unchecked.

Organizations can protect themselves against a potential accusation of spoliation and its consequences. Doing so requires striking a balance between appropriate destruction of stale documents and adequate preservation of potentially significant ones. Such a balance is the key to effective electronic document management and the protection of a company's information assets. Successfully addressing this issue requires development and implementation of a thorough and thoughtful electronic document retention policy.

Developing a Document Retention Policy

A document retention policy involves the systematic review, retention and destruction of documents received or created in the course of business. "The existence of a document policy may, under certain circumstances, be deemed a mitigating factor in litigation when documents are destroyed pursuant to it, while a company's failure to have a coherent policy may be an aggravating factor, "noted Ian C. Ballon in How Companies Can Reduce the Costs and Risks Associated with Electronic Discovery.

If a corporation intends to implement a document retention policy, the policy should be tailored to its particular needs. The best place to start is to create an electronic information inventory, which provides a "table of contents" for the document retention policy -- supplying an outline of the company's electronic framework.

The document retention inventory should include records of:

* All electronic hardware and software in use throughout the company (including cell phones, PDAs, laptops, etc.).

* All locations and storage formats of archived electronic data.

* All methods in which data can be transferred to/from the company.

Next, every company should define specific classifications of business records. Varying types of business records have different purposes and different "useful life" periods -- the period of time when the record is important for business decisions. Setting up record classifications will streamline record-keeping decisions after the record retention policy is in place.

The bulk of the retention policy should include a method for determining retention periods, schedules and procedures and naming a records custodian. The policy should create an index of active and inactive records and implement "log books" in which all destroyed documents are recorded.

Lastly, the policy should include a delegation of record-keeping authority among the different departments, a reporting structure and the delegation of a discovery-response team in the event of pending or impending litigation. Such litigation-response teams should be comprised of outside counsel, corporate counsel, human resource supervisors, business line managers and IT staff. This team should be officially authorized to quickly alter any document retention policy in the event of an emergency.

In determining appropriate retention periods, there are two guidelines. First, many records (such as tax documents and Securities and Exchange Commission filings) have state or federal statutory/regulatory retention requirements. These vary by jurisdiction, and can differ for each company. The standard for all other records is based on reasonableness, and what is reasonable is determined according to individual business practices and industry standards.

It is important to note that all categories of records do not have to be treated equally. Some data (such as email) can be retained for relatively short time periods (45-90 days), while other categories (such as financial records or legal documents) should be permanently preserved, depending on their contents.

The majority of routine business correspondence and project files can be retained anywhere from one to five years, depending on the document's useful life period as defined above (purchase orders, human resource files, vendor reports, sales reports, inventory/production schedules, etc.). For sample document retention guidelines, visit the American Corporate Counsel Association's Model Corporate Records Retention Guidelines, available at

Most importantly, a corporation must retain all relevant documents when it knows, or should have reason to know, that they will become material at some point in the future. Willful destruction of documents is a serious offense, and courts tend to issue severe sanctions for intentional spoliation. In the wake of pending or impending litigation, the following action items should be considered:

* Company executives should give a "preservation notice" to all employees who may come in contact with potentially relevant data.

* Litigation-response teams should be called into action to enforce document preservation.

* If the company uses automated software to destroy records, these programs should be halted.

Training and Enforcement

Once the document retention policy is established, the company should clearly document and regularly train employees as to how the policy impacts day-to-day operations. For example, how often are employees allowed to delete emails, and under what circumstances must email files be retained? Close coordination among the IT and human resources departments is needed to publicize the policy, as well as a "frequently asked questions" brochure, via the company's communication channels.

Companies transacting business in today's high-tech business environment should already have the above-outlined provisions in place. Yet, the reality is that outdated email, antiquated files and archival data stored on backup tapes or disks are often kept for months or years. Unwieldy preservation of all electronic data and email created in the course of business can come back to haunt a corporation when litigation ensues. Furthermore, failure to monitor and enforce document retention polices can prove perilous, as publicized by the media in recent high-profile cases.

For example, in the case of Murphy Oil USA Inc. v. Fluor Daniel Inc., "Fluor's email retention policy provided that backup tapes were recycled after 45 days. If Fluor had followed this policy, the email issue would be moot." As a result, the parties have spent plenty of time and money arguing the discoverability of email messages that should have been destroyed.

Electronic data management should be a top priority for corporate leadership and corporate counsel. It should not be seen as an annual "spring cleaning," but as a business initiative that is continually reviewed, updated and audited. A company's records are its information assets. Managing such electronic assets through a reasonable and recorded document retention policy can help reduce the risks associated with today's high-tech corporate culture.


1. Make electronic data management a business initiative, supported by corporate leadership.

2. Keep records of all types of hardware/software in use and the locations of all electronic data.

3. Create a document review, retention, and destruction policy, which includes consideration of: backup and archival procedures, any online storage repositories, record custodians and a destroyed documents "log book."

4. Create an employee technology use program, including procedures for: written communication protocols, data security, employee electronic data storage and employee termination/transfer.

5. Clearly document all company data retention polices.

6. Document all ways in which data can be transferred to/from the company.

7. Regularly train employees on the company's data retention policies.

8. Implement a litigation-response team--comprised of outside counsel, corporate counsel, human resources department, business line managers and IT staff --that can quickly alter any document destruction policy.

9. Be aware of electronic "footprints" -- delete does not always mean delete, and metadata is a fertile source of information and evidence.

10. Cease document destruction policies at first notice of a lawsuit or reasonable anticipation of a suit.

As a final note, make a practice of conducting routine audits of policies and enforcing violations.

Source: Kroll Ontrack

Michele C.S. Lange,, is a staff attorney for the Electronic Evidence Services division of Kroll Ontrack Inc. (
COPYRIGHT 2002 Financial Executives International
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Author:Lange, Michele C.S.
Publication:Financial Executive
Geographic Code:1USA
Date:Dec 1, 2002
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