Risks Are Rising for

By Kim S. Nash  |  Posted 2006-08-02 Print this article Print

When encountering legal or regulatory action, technology managers who fail to get corporate data fast or vouch for its completeness can cost their companies millions of dollars. Learn what happened to WestLB, an investment bank, when it had to exhume 650,


Risks About to Rise

Along with e-mail, corporations wrestle with information on PCs, cell phones, handheld devices, flash drives, application servers and Internet-based phone systems. Ninety percent of all documents created and received by businesses are now electronic, according to ARMA International, a group of professional information managers. An average PC can contain 1 million pages of information—a number that litigators considered "mythical" just 15 years ago, says George Socha, a lawyer and founder of Socha Consulting LLC, an electronic discovery advisory firm in St. Paul, Minn.

In terms of archived data, Baseline estimates that there are 13.4 million terabytes of information stored magnetically worldwide, 255,000 terabytes on film, and 1,965 terabytes on paper and optical disks. As one terabyte equals about 1 trillion characters, all told that's 13,656,965 trillion letters and numbers warehoused in the business world.

"There is more data than anyone can handle," Socha says.

Lawyers play on this data chaos and "use e-discovery as a club in order to draw the attention of the defendant as to the seriousness of the issues," Herrmann adds.

Despite the volume of data, companies do have to comply with industry regulations for data retention. For example, the SEC says financial services firms must keep broker e-mail for three years; the federal Health Insurance Portability and Accountability Act (HIPAA) says hospitals and doctors must keep billing records and authorization forms for six years, and other patient data, including e-mail discussions of a patient, for the life of the patient.

Aside from such specific rules, companies can set their own retention policies—but most don't.

Sixty-six percent of companies lack policies for saving, purging and managing e-mail, according to a survey last month by the American Management Association and The ePolicy Institute, which advises companies on Internet risks. No policy is risky when subpoena rates are rising, says Nancy Flynn, executive director of The ePolicy Institute in Columbus, Ohio. Twenty-four percent of the 416 companies surveyed had electronic messages subpoenaed by lawyers or regulators last year, up from 14% in 2003.

Expect additional pressures in December, when amendments to the Federal Rules of Civil Procedure go into effect. The new rules require lawyers to know enough about their clients' information systems to disclose all sources of electronic information relevant to a case. That includes sources where data is not "reasonably accessible" because it is costly or hard to produce. Dusty and perhaps forgotten backup tapes are a prime example. If one side wants hard-to-get information, the other side has the burden to show why they can't have it.

Discovery will be broader and more expensive, Herrmann says: "All information, no matter where it's housed—voice mail, BlackBerrys, handhelds, instant messaging—it's all fair game."

When a company faces legal or regulatory questions about its e-mail and data retention practices, it's the corporate chief information officer, among other corporate officers, who will be called to answer, says Linda Sharp, a legal consultant with Kroll in Palmdale, Calif. Companies can't shift the onus to their law firms, Sharp says: "It's your data. It's your responsibility. It's your board of directors and your stockholders when the stock is going to plummet."

Unfortunately, most companies and their CIOs today would likely find themselves in the same situation as WestLB.

Next Page: WestLB Tackles Electronic Discovery

Senior Writer
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.

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