Since Watergate, the destruction of records and notes has assumed an aura of wrong doing that is, of course, usually utter nonsense. No business (or individual) can afford to keep the vast amounts of documents and papers that accumulate over the years and at some point must routinely and efficiently destroy the archived papers. Certain documents, by their very nature, must be kept longer than others but the creation of an intelligent and appropriate method for destruction of old records is a vital part of every business’s day to day business.
A new industry has arisen over the past two decades which allows companies not only to store old paper documents off site, but to scan and store all such documents electronically, thereby saving space and often allowing easier access. This has resulted in an additional question (should the paper documents thus be destroyed sooner or at all?) and the more basic question as to whether this means all documents should be scanned and maintained indefinitely.
The question still remains as to whether it makes sense to retain, in perpetuity, documents that are unlikely to ever be used and which may often contain confidential or private information that could cause concern to customers, employees, or the company. That is a vital question that each company will have to determine and determine after careful thought as to the purpose…and the dangers…of such storage. It is a sad fact that such vital decisions are often made by default…or never made at all. As one client put it, “Pack rats have nothing on us. If we make it, we keep it and we keep it forever. That doesn’t mean we can find anything…but we know it’s there.” Does that make sense? This article shall discuss that issue.
This should not be confused with the destruction of evidence that may be of import in a case or audit which, itself, can be a criminal act. The moment it is reasonable to assume a document is an important piece of evidence, it must be set aside and saved from any destruction.
When and how to determine what documents to destroy is the topic of this article.
The Basic Determination:
Corporate document destruction has a negative connotation, and some companies find themselves paralyzed into inaction as a result. But not destroying documents can be detrimental to a company, as well.
In the administrative life of any corporation, document destruction is a necessary and important function. Companies need to destroy documents, just as they need to do any number of other administrative tasks that relate to the efficient operation of the company. No company needs to live in an environment in which employees are expected, literally, to retain every piece of paper that ever crosses their desks. It's just not efficient; it's not practical--there are costs associated with that, and there are risks associated with that, risks that we have dealt with directly.
When one is litigating a case, if there is a policy of keeping every document or many, many documents and of never throwing anything away, it can dramatically multiply the costs of discovery. When confronted with a very broad discovery requests that say, "Give us every document relating to 'X'," and "X" is something like, “the company's business”, and you have retained all these documents and they are kept in off-site storage or they are on electronic servers, the cost of reviewing that information and producing it can be staggering. And so one of the benefits of having a policy not to preserve everything, is the cost associated with preserving everything.
There are also risks in litigation with keeping documents long after they have any beneficial use within the company. Oftentimes, in litigation, the most troubling documents can be those that were created by employees who have long-since left the company and who are no longer around to interpret what they meant when they said "X" or "Y." And when those documents were created in the ordinary course of business, but there is no particular need to keep them, because they relate to long-since outdated things, and there is no real value to them, it is a legitimate question for a company to ask itself--does it really need to be keeping documents? These are documents that can serve no beneficial purpose, but can potentially, in litigation, add cost and complexity and raise perhaps unnecessary questions to which there are no good answers, because the people with the direct knowledge are no longer available.
On the other hand, there are many important reasons that one may need to keep documents. Virtually all companies, in some respect or another, are affected by regulations--federal, state, local, and increasingly international--that relate to preservation of records for some purpose or another. There are also business needs for keeping documents. There are documents that have ongoing value, or that maybe are of historic value to companies, and it is important to make certain that those sorts of things are being kept for business purposes or other purposes.
In short, some documents should be kept but not all documents and a plan must be established to determine what documents are kept for how long…and why.
Given that there is reason to keep records and there is reason to destroy records, it can become somewhat complicated to put in place a policy that creates some sort of systematic program that informs employees as to what it is they should keep and what it is they should discard or that they are free to discard.
Creation of the policy should be a joint effort of both the business managers and the legal and accounting departments of every company. Lawyers and CPAs will have their own criteria as to what should be kept and what destroyed and only after their input is received should a policy be created. Of course the business managers and regulatory managers will also have their own list of documents that are vital to retain.
The rest should be routinely destroyed after a set period of time, usually three to five years, with the policy kept in writing in a secure location so that later claimants can not allege that the company wantonly destroyed a particular document in an effort to merely hide evidence. If the company normally destroys X document in Y time, such a charge will not be taken seriously by most triers of fact.
Equally true, the policy should apply to the destruction of electronic documents and for this process the IT department should be consulted and utilized. It makes little sense to destroy paper versions of a document if the end result is merely having to recreate them from electronic versions once discovery in some case is begun. Thus, the policy should indicate what type of medium is to be retained; destroyed; or if paper is to be destroyed (to gain storage area) but electronic to be kept for future use.
Creating such a policy is not an easy task. It becomes a complicated thing to do because you do need to make sure you are complying with the law; you do need to have a policy that is sensible--that is sufficiently comprehensive that it really does cover all the bases and that is intuitive and easily understandable for employees. The last thing you want is to implement a records retention policy that employees are not going to take seriously because these policies are being scrutinized increasingly in litigation. And if it is a policy that looks like a policy only "on paper," but it does not really function like a policy that is respected by employees, then it is going to be disregarded. And the risks of putting in place a policy like that can dramatically outweigh the benefits.
The company must be serious about creating and implementing the policy. The policy has to be based on legitimate business concerns and it has to be done cautiously and with safeguards to make sure that you do not inadvertently destroy things that should not be destroyed.
It is vital to avoid written instructions or policies that can be misinterpreted in a manner to make it appear that the company is seeking to merely hide evidence or avoiding audits. The instructions themselves should indicate the real purpose-to avoid mountains of useless paper-and carefully instruct the employees not to destroy any document within the specified categories such as:
1. Documents needed for legal or regulatory record keeping.
2. Original contracts or understandings of any kind.
3. Letters concerning disputes when the statute of limitations has not run.
4. Documents pertaining to ownership or rights of owners in the company.
5. Corporate or LLC records and certificates.
And originals of any kind of license, permit, etc.
Lawyers, CPAs and all managers will add to the list of what documents should be retained and for how long.
Recall also that electronic records are equally important to scrutinize and delete over time. The policy needs to be done with a careful eye to records that are created and maintained in an electronic form.
The steps are both necessary and should be taken pursuant to a written policy:
1. Have input from legal, accounting and mangers.
2. Create a system of routine destruction of old records.
3. Double check as part of the system to ensure no destruction of certain categories.
4. If suit or audit appears reasonably likely, immediately pull those records out from routine destruction.
5. Review the policy every three to five years to update it.
6. Assign someone the task no less than annually to make sure the policy is being followed and to report any failures to implement it properly.