Document retention post-Arthur Anderson: The ultimate risk-benefit analysis

Jim Derouin
Senior Environmental Attorney
Steptoe & Johnson LLP
Phoenix, Arizona

A document retention program is like a gun around the house—it may be there for a good purpose, but it can be misused and must be constantly supervised. A manager, therefore, must consider both the risks as well as the benefits of such a program because, in the end, there are a lot of both.

Document retention has suddenly gotten more complex
The institution of a document management program seems like a "no-brainer." The regular destruction of documents can save significant storage costs. The issue of document retention is, however, one of those classic "damned if you do, damned if you don't" propositions; the federal prosecution of Arthur Andersen is a case in point. If you have no document retention program, then all document destruction decisions must be made on an individual basis which maximizes the chance of error. If a document retention program exists, however, it must have proper oversight because it can be manipulated for illegitimate purposes.

The public and private sectors differ in what they can do
State and federal laws typically prohibit the destruction of public documents unless one follows a very detailed statutory process. Therefore, much of the discussion below is limited to private sector corporations. When representing public bodies, I have always counseled against any document destruction unless the mandated process is very carefully followed and very carefully documented. If in doubt as to what rules apply, act carefully and only with written legal advice from a proper source.

If a private corporation, concentrate on adopting a smart, not a clever, document retention program
You may have inherited a document retention policy or you may be asked to create one. Or, in the real world, you may get a call on a Friday afternoon asking your approval to destroy two million pages of documents which are shrink-wrapped and ready to be loaded on a truck for delivery to an incinerator. If you don't say "yes," you will be standing in the way of progress and a person who never gets anything done. Well, in the words of Nancy Reagan, sometimes you "just have to say no." But the story really starts well before that fateful Friday afternoon. Considerations include:

  • A document retention program has a legitimate business purpose. The purpose is not to evade the law, but, rather, to manage the mass of documents that a corporation today generates. Thus, there should be no "hidden agendas" in the creation of such a program.

  • If it is not clear that documents can be destroyed, don't destroy them. The burden will be on the decision-maker to justify the action should it turn out after the fact to be controversial.

  • Various federal and state laws require the retention of documents for various periods of time. In addition, records relating to a "matter" cannot be destroyed. A civil or criminal investigation by prosecutors is clearly a "matter" as is a court proceeding. The same is true with an investigation by a governmental regulatory agency. Less clear is whether a "contested case" administrative hearing is a "matter." These nuances pose serious legal questions that have potentially significant civil and criminal consequences.

  • Be aware of all "documents" that are being created. We tend to think of documents as being hard copies of letters and reports. Today, documents exist ubiquitously in computers (even if supposedly "deleted"). And what about those phone mail messages and the endless e-mails that get created every day? The task of creating an inventory of document categories is a staggering, yet necessary, one.

  • You most likely already have one or more document destruction programs in your corporation; you just may not know it. Your Information Technology department is most probably not storing all phone mail messages or e-mail traffic; or it may have time limits on the length of time that they will be stored. So even if your corporation has no official document retention policy, it most probably has several "unofficial" policies which pose serious legal questions that have potentially significant consequences—particularly if you continue to destroy these "documents" after the commencement of a civil or criminal investigation.

  • A document retention program requires clear and unambiguous guidelines on how to apply it and proper training on its use. Further, such training must be repeated periodically to take into account the normal changeover of personnel.

  • There must be management vigilance for the good of everyone involved. If, for example, an employee asks for a copy of a document retention policy "out of the blue," this should raise a large, red flag. It is not likely an idle request.

  • Implementing a document management system at a time of crisis is a recipe for disaster. If there is anything worse than a bad document, it is an illegally destroyed document. Regardless of what is lawful, the following question should guide your conduct: "Is my decision defensible and how will it appear to the media, to regulators, to prosecutors, to shareholders and to the board?"

  • Internal documents today are a major headache for corporations in toxic tort cases. Repositories of such documents are kept on websites for use in litigation throughout the country. While such documents may not be incriminating, they commonly contain legal conclusions and express irrelevant personal opinions. Although it is impossible to control personal expression in a free society, some corporations have used various gatherings (such as division retreats or seminars) as an opportunity to educate employees on the fact that what they write could be the headline in the next day's newspaper. The lack of such training cannot be cured by the late and hurried application of a document retention program. The cure is to not create the bad document in the first place.

  • Ethics count and lawyers matter. In light of contemporary events, never has the public expectation of ethical conduct been lower or the legal requirement of ethical conduct been higher. Never have more people with more power looked over the shoulders of corporate America to make sure that its conduct is proper. Ethical conduct has now become a legal requirement backed by the force of federal law rather than merely a professional duty. Many lapses that have caused current controversies can be attributed to lawyers either not doing their jobs or not being allowed to do their jobs. The margin for error, as a result, has been reduced to the point of "zero tolerance." All of this must be taken into account when considering whether to make a "no-brainer" decision on document retention.
Conclusions
A corporation cannot afford to store all documents it has or will create. The cost of saving them in perpetuity should and can be avoided. The question is how to adopt and manage a proper program that saves money while, at the same time, does not create more problems than it cures. Once created, it must be supervised and personnel must be trained on its proper use. Ultimately, the question to ask is: Is the benefit of a properly drawn, properly managed document retention program greater than the risks associated with the program? That answer can differ from company to company. One size does not fit all. But, if a corporation can build a product to meet market specifications, it can design and manage a successful document retention program.

Jim Derouin can be reached at (602) 257-5237 or at jderouin@steptoe.com.