Articles by Levick Experts

As the U.S. Attorney firing scandal continues to unfold, investigators are uncovering thousands of documents and emails that shed light on how, why, and by whom the dismissals took place. The stories shift and the facts change. Increasingly, Gonzalez’s original version looks dubious at best.

But give him credit: By shunning email into and out of his own office, Gonzalez understood at least some of the inherent dangers of electronic communication.

Companies and government agencies alike should be equally circumspect. Electronic discovery grows more sophisticated all the time. Lawyers and government investigators often find the linchpins to their cases and probes buried in electronically stored information (ESI). Stock-option backdating cases, for example, may turn on computer time and date stamps.

From the mail room to the C-Suite, managers and employees are typically way too cavalier in how they control electronic missives, internally and externally. Consider:

• The electrical engineer who bragged to his company’s R&D department about “borrowing” a trade secret from his rival
• The young attorney who mistakenly hit “reply to all,” advising the managing partner as to what he really thought about the law firm and its leadership.
• The errant message from a regulatory agency that revealed ways a company can jump through a loophole and save millions in operating costs

Don’t rely on the trash files. Emails return like zombies from the dead. “People think they’ve deleted emails but most of the time they’re not really deleted,” said attorney Jonathan Hoff at a recent forum on electronic discovery.

The consequences can be staggering in terms of both money and reputation.

If your company gets sued, remember that electronic discovery consultants charge around $300 per hour. Producing ESI in high-standard formats during litigation can drain the coffers even in run-of-the-mill cases. Litigants are expected to spend more than $2.4 billion on electronic discovery services in 2007.

While it may seem tempting to opt out of hiring an expensive ESI consultant, that decision can easily prove more costly in the long run. Courts have not hesitated to slap sanctions on companies that provide spoiled ESI or produce it too late in the litigation. An appeals court in Florida has overturned the 2005 judgment against Morgan Stanley in the lawsuit brought by Ronald Perelman, but the email irregularities in that case did lasting damage to the brokerage giant, helping fuel a shareholder revolt that forced Chief Executive Philip Purcell out of power.

Morgan Stanley also became the poster child for email disasters as the Perelman judgment reinforced the negative effects of many earlier snafus. Most notably, in 2006, the firm agreed to a record $15 million settlement with the SEC over its alleged failure to provide tens of thousands of e-mails related to investigations spanning nearly five years.

Not many companies could survive the public relations hit. If nothing else, the repeated allegations threaten erosion of investor confidence on a long-term basis. As such, there must be comprehensive prophylaxis at the operational level and, as it’s an issue affecting all employees, a communications strategy is crucial to the prophylaxis. In particular:

• Realize that it’s not just an IT issue. You need everyone involved – executive management, in-house counsel, line managers – in setting and implementing extensive policies. No one can be left in the dark. Pleading ignorance gets you nowhere in a court of law or the Court of Public Opinion.
• Take inventory. What assets do you already have to retain data? What’s truly being deleted? What’s still skulking in cyberspace? How competent are your back-up systems?
• Don’t wait for litigation or some other crisis. It’s too late by then. Start early and get document-retention policies in place before trouble hits.
• Stay abreast of rule changes. For example, recent amendments to the Federal Rules of Civil Procedure require all parties to include ESI in mandatory disclosures. Your policies need to be updated to reflect such changes.

Finally, consider a public outreach to advise critical audiences of the steps that you have taken. Doing so is not without some risk if you define standards that you cannot live up to and, ideally, exceed. But the advantages in terms of publicly identifying yourself as a standard-setter could outweigh the risk.

After all, your customers are watching too. Ask Morgan Stanley.