A federal district court judge in Arkansas ordered sanctions against Cooper Tire & Rubber Co. earlier this year for destroying documents related to a product-liability case. Although the documents were shredded in accordance with the company's existing document-retention policy, the judge ruled that Cooper "should have known [the documents] were relevant to litigation" and therefore they "should have been preserved."
The Sarbanes-Oxley Act of 2002 looks at Cooper's behavior--known as spoliation--even more harshly. The new law makes it a crime to intentionally change or destroy a record that might be germane to any federal investigation. The punishment? Up to 20 years in jail.
Not so long ago, the question of whether to keep or destroy a company's documents was often answered by someone in the facilities or waste-management department. No more. High-profile fiascos like that at Arthur Andersen have raised the stakes. "Document-retention policies are now corporate-governance issues, with responsibility going to the top," says Bob Johnson, executive director of the National Association for Information Destruction Inc.
As senior managers try to find the right balance between what to save and what to destroy, some say they have gone from one extreme to the other. "Companies are saving too much now," says attorney Simon Lorne of Munger, Tolles & Olson in Los Angeles. They are being driven to do so, he says, not by their auditors, but by newspaper headlines.
"A lot of public companies are in a defensive posture," contends Quentin Faust, an attorney in the Dallas office of Arter & Hadden LLP.
There are legitimate reasons for destroying documents, as long as a clear policy is in place. While there is no such thing as a "one-size-fits-all" approach, there are certain guidelines, says Faust. First, it should be applied in a consistent way: it's hard to say that something was destroyed in accordance with a company's policy if the policy is applied randomly. Second, it must also be able to accommodate requests for documents that were scheduled to be destroyed if they are needed for legal or other reasons.