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Management
Shred Early, Shred Often NEW YORK - Arthur Andersen might still be in business if it had simply stuck to a policy of shredding its nonessential records all along--and that's got corporate America's attention. "From the day the Enron story broke, we started getting more calls from companies asking for help managing the retention and destruction of documents," says Joan Feldman, president of Seattle-based Computer Forensics, a records management firm. "Executives are changing things, like how long their companies keep their backup tapes. Others are just thinking about this for the first time." It's not that these companies are out to destroy incriminating evidence. "Most companies will probably be careful to stipulate in their policies that all shredding stops if litigation is ever imminent," says Jonathan Hamilton, editor of Public Accounting Report. But executives now realize that the more papers pile up, the greater the odds are that some of them could appear damaging--regardless of whether there is any actual wrongdoing. "It's a numbers game," says Feldman, "and everyone just wants to make sure that they're playing it intelligently." The fact is that firms can't control what their employees write. Feldman recalls an employee in her very own office who regularly sent out alarming e-mails warning of things like hazardous fumes from the laser printer, which could have been perfect fodder for a workman's compensation case. "All I could think was, 'Thank God we don't keep e-mail backup tapes more than a week, because from reading these messages you'd think you needed a hard hat to come to our offices.'" Since every company is liable to be sued at some point, the best defense is to have a document retention policy in place that is adhered to regularly, experts say. Although the Andersen affair has imbued the phrase "document retention" with a sinister connotation, the practice of routinely sorting out the reams of records that a firm accumulates makes sense from a business standpoint. "For Andersen, having the paper shredders suddenly running 24 hours a day looked bad," says Hamilton. "If shredding were something the company did every Tuesday, then it just looks like the firm's standard practice." The laws governing evidentiary discovery in the U.S. are very broad, notes Feldman. So if a company has 30 years worth of records, which may or may not contain information relevant to a case, it is obligated to search them for evidence, in what is a time-consuming and very expensive process. The irony is that it was an errant and incriminating memo that got Andersen hung in the 1998 Waste Management (nyse: WMI - news - people ) affair. In that case, the government revealed that after Andersen learned its client had overstated earnings by $1.7 billion, the auditor then worked with the firm to understate earnings in future quarters to "fix" the problem. Andersen's resulting fine, and a U.S. Securities and Exchange Commission injunction barring it from violating securities laws, spurred the auditor to strengthen its document retention policy at the time. "Given that fact, I've never gotten a great answer [from Andersen employees] as to why the Enron documents weren't destroyed," Hamilton says. Most, he says, told him that there was simply too much material and not enough manpower to handle it. Of course, documents have been damning companies for decades. In the 1970s and 1980s, Ford Motor (nyse: F - news - people ) was subjected to a slew of lawsuits--as well as criminal charges it fought successfully--and had to pay out millions after company correspondence was uncovered proving that it knew its Pinto models burst into flames when rear-ended. More recently, there were the menacing e-mails written by Microsoft (nasdaq: MSFT - news - people ) Chairman Bill Gates, threatening to "kill the competition," that were trotted out during the government's antitrust trial against the software giant. And given the newly sensitized regulatory environment, the likelihood of getting burned by corporate records--regardless of actual guilt--has skyrocketed for every public company. "The government is going to lay into financial reporting," says accounting consultant Allan Koltin. "Companies are aware of that. Now they know everything they have can be subpoenaed--that nothing is sacred anymore."
The Appellation Trail - 9/16/02 12:00:00 AM ET A Napa winegrower bets his fortune on new soil. Baseball: Blame the Owners - 9/16/02 12:00:00 AM ET They're the ones who took on too much debt. The Week Ahead: Sept. 2-6, 2002 - 8/31/02 12:00:00 PM ET Merrill's O'Neal addresses bankers; UAL's Creighton will hear from union; Halla reports National Semi numbers. The World's Best Whiskey Tours - 8/29/02 12:01:00 AM ET Whether you're a fan of single malt or sour mash, a visit to a distillery will give you a warm glow. Hires And Fires: Aug. 26-30, 2002 - 8/31/02 12:00:00 PM ET Bible retires from Philip Morris, Camilleri takes over; Beeth named Xerox pres; Dynegy mgmt realigned.
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PRESS DIGEST - Wall Street Journal - Aug 12 Faces In The News: Aug. 29, 2002 Labor Day Stock And Fund Bargains Related quotes
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