Shredding is not always the solution, as former Andersen partner David Duncan and others at the troubled accounting firm have painfully discovered. But how does the not-so-culpable executive know when he or she is free to dispose of some of the oceans of paperwork and digital correspondence in which all corporations are drowning? Given the current environment, the rules are clearly in flux, and destroying documents in the name of saving money on records storage could land an unsuspecting executive in jail, or at least hot water.

Just ask Securities Exchange Commission Chairman Harvey Pitt about the shifting mor?s on document shredding. Currently, Pitt and his enforcement staff are hard at work trying to recover truckloads of records from Enron and Andersen and determining why some documents were destroyed. But back in 1994, when he was a partner at the law firm of Fried Frank Harris Shriver & Jacobson and a leading defense attorney for companies facing discovery motions, Pitt sang a different tune. In an article entitled "When Bad Things Happen to Good Companies: A Crisis Management Primer" in the Cardozo Law Review, the SEC chairman made the argument for destroying as much as you can right up until the point when a subpoena is being issued. He wrote: "Each company should have a system for determining the retention and destruction of documents. Obviously, once a subpoena has been issued or is about to be issued, any existing document destruction policies should be brought to an immediate halt." The reason for the aggressive shredding: "Ask executives and employees to imagine all their documents in the hands of a zealous regulator or on the front page of The New York Times."

Admittedly, some lawyers, including high-ranking ones in the U.S. Justice Department, say Pitt's earlier view of when records destruction must stop is incorrect. Generally, they say, courts have held that once a company knows that its actions are coming under scrutiny–even press scrutiny–it can no longer destroy relevant records. As Deputy Attorney General Larry Thompson says, federal law "makes it clear that an official proceeding does not have to be pending in order for someone to come within the ambit of the obstruction of justice statute." Still, Pitt's advice was far from extraordinary for a defense lawyer.

For years, it was standard advice from corporate defense attorneys that companies should err on the side of document disposal rather than retention. But one lesson corporate America is learning is that a document's existence isn't always definitively eliminated with its shredding. This is particularly true for electronic documents, as Richard Nixon and later Oliver North discovered: Just pressing an erase or a delete button doesn't necessarily make a message–or evidence that it once existed–disappear. And these days, juries and judges tend not to give any benefit of the doubt as to how damning the file might have been.

No Best Practices to Follow

"From a plaintiff's perspective, we obviously want to see documents," says James Schweitzer, an attorney with The Cuneo Law Group in Washington. "I think companies are destroying documents not because storing them is a problem, but because of concerns about potential liability issues. It's a new world. Jurors aren't going to react well to hearing that a document was destroyed because the company has a [wink, wink] retention policy."

So the cardinal rule of any document retention or destruction program must be simple and clear: Be consistent. "You can't have a written policy, ignore it and then suddenly start doing it," says Jonathan Redgrave, an attorney with law firm Jones, Day, Reavis & Pogue's Washington office. "There are no best practices to follow in this field. Some companies will define very narrowly what they need to keep. Others may want a broader policy on retention. Either way, every company should have clear policies on what is a business document. Do all drafts need to be saved or maybe just the interim drafts that got circulated?"

When to Shred

Eugenia Brumm, who handles records retention at Owens Corning, agrees. "The key phrase you want is that records were destroyed during the normal course of business," says Brumm, a certified records manager who has taught records management at several universities. "If the destruction is done because records no longer serve any business purpose, that is considered a pure motive."

The lack of consistency is what landed Andersen in hot water with the Justice Department. Andersen had a records destruction policy in place, but apparently had not been adhering to it. Then, allegedly when the accounting firm already knew that there were questions being asked about its work for Enron, an order went out to "implement" the company's records retention plan–an order which reportedly led to truckloads of documents suddenly being shredded. The Justice Department indictment against Andersen states: "Instead of being advised to preserve documentation so as to assist Enron and the SEC, Andersen employees on the Enron management team were instructed by Andersen partners and others to destroy immediately documentation relating to Enron and told to work overtime if necessary to accomplish the destruction."

One solution to the whole controversy is to keep everything. But while a company is not likely to feel the wrath of the justice system, it isn't helping its bottom line by being so indiscriminate. "I have a client–a financial services firm–that is spending several million dollars a year just to keep 1.5 million boxes in storage in warehouses," says John Montana, principal in Montana & Associates, a Landenberg, Pa.-based consultancy specializing in records management issues. "And if some plaintiff's attorney shows up at their offices with a subpoena to start looking for stuff, it's going to cost them millions more in search costs."

Montana notes that a records search can typically cost a company $2 to $5 per page, and that a typical corporate lawsuit can involve, at a minimum, several hundred thousands of pages of documents.

"Clearly, there is a risk to companies that don't aggressively attempt to get their arms around the massive amount of data that they have," says Harry Baumgartner, director of insurance at BASF Corp., where he formerly served as corporate counsel. At BASF, employees know what their record-keeping responsibilities are and understand that they need to exercise care with electronic mail. It means that there is a good preservation system for back-up tapes and paper records, with regular reviews of what is being retained. And it means that there is a state of the art "retention" program for eliminating what is not needed.

But Owens Corning's Brumm says corporate executives need to realize that establishing a records management program is no easy task. "A lot of managers think this can be done with the wave of a magic wand," she says, "but getting set up is a huge project."

At Owens Corning, rolling out the program involved several years devoted to developing a retention schedule, eliminating an enormous amount of old records, and finding out where the problems were in the organization's record-keeping systems. Each department and function in the company, Brumm notes, had to participate in the development of a retention schedule and then sign off on it.

Efficiencies and Savings

In the end, though, Brumm says the establishment of a records management program means a boost in efficiency and net savings for the company. "Many managers think of records management as a cost center, but that's wrong," she says. "First of all, you're going to get rid of 40% to 50% of your records right away, which makes you more efficient. Afterwards, you know where everything is." By one account, a typical employee spends 10% to 20% of her or his time in a day looking for documents and other things. Brumm argues that with a good records management program in place, wasted time is, if not eliminated, at least dramatically reduced.

Most companies aren't even close to setting up this kind of comprehensive policy, according to experts like Brumm and Baumgartner. And after all, in order to be consistent, one has to have a policy in the first place.