Defending Against Lawsuits

By Jeffery Fehrman  |  Posted 2011-01-28

C-level executives strive to protect their companies from lawsuits and regulatory proceedings, but lawsuits are part of business, so the C-suite needs to be prepared. CEOs must protect their organization’s reputation and reduce shareholders’ risk, CFOs must control costs and CIOs must effectively manage the growing mountain of discoverable data within their enterprises.

To protect their companies from prohibitive costs, catastrophic risk and over-burdened internal resources stemming from legal proceedings, the C-suite must understand the legal discovery process. This is critical, as the amount of electron-ically stored information (including e-mail, instant messages, blogs, tweets and texts) is growing exponentially, and courts are becoming intolerant of incomplete or late discovery responses and are imposing sanctions more frequently for discovery negligence. Simultaneously, boards of directors are increasingly demanding greater accountability from the C-suite.

E-discovery can be expensive, although many companies are minimizing this with proactive preparation. Organizations can save time and resources during discovery by determining where documents are located, reducing the data-storage footprint and implementing storage policies. Throughout the current recession, however, many organizations have deferred the investments needed for these proactive steps so as to save up-front costs.

The CEO’s Responsibility

CEOs must understand the importance of implementing and enforcing litigation readiness processes and policies. Successful e-discovery relies on a balanced mix of people, process and technology. If a proactive process isn’t established, employees’ expertise and advanced technology capabilities will have significantly less impact. Also, to reduce the chance of employees sharing damaging or classified communications, CEOs should establish guidelines for the dissemination of sensitive knowledge.

The CFO’s Role

CFOs should value a prepared discovery plan because it can reduce risk and expenses. Poor litigation preparation can consume large amounts of time and lead to higher attorney fees, as well as missed court deadlines, fines and courtroom losses. The CFO should compare the costs associated with proactive litigation readiness to the expense of unprepared discovery. Sometimes, settling a lawsuit is the most cost-effective solution, and establishing a discovery process can help facilitate the right business decisions.

The CIO’s Duty

CIOs should encourage active data mapping to quickly identify information and organizational systems, and to locate important data while working with the legal department to assess litigation readiness. But only 35 percent of senior executives realize that records management is vital to risk mitigation, according to a 2009 survey by management consulting firm Cohasset Associates.

Inadequate records management contributes to misplaced documents, potential discovery negligence and increased discovery costs. There’s no “easy” button: Buying a tool will not single-handedly solve discovery and litigation problems. Digital forensics experts can be a valuable asset to the defensible collection and analysis of data.

The Lawyer’s Job

Together, the CIO and the legal department have the greatest power to improve litigation processes. They should drive the message to employees: A data map is absolutely essential, and the company must be litigation-ready at all times. The legal department should reinforce the need for processes and policies and ensure that they’re enforced by the human resources department and IT. Most important: When a lawsuit is anticipated or occurs, counsel must immediately establish a litigation hold, suspending all normal data destruction to prevent any chance of spoliation (withholding or destroying evidence) and subsequent lost cases.

Preparing for the Future

Anticipating a response to emerging technologies such as social media and cloud computing will become the C-suite’s greatest challenge. Decisions cannot be driven solely by the CEO, CIO or CFO; they must be unanimous, informed choices.

The C-suite must prepare for cloud computing-related discovery and cannot ignore the risks related to social media, with the majority of employees using this medium to voice their thoughts and opinions. To effectively handle these technologies, the C-suite must develop control policies to preserve and collect electronic social interactions and to respond to discovery for the various media.

No C-level executive wants his or her company to face litigation and discovery, so it’s essential to prepare. If C-suite executives collaborate and proactively establish policies on social media, cloud computing, storage and communication practices, they’ll minimize risks and be better prepared to navigate regulatory investigations and legal proceedings.

Jeffery Fehrman is the vice president of forensics and consulting at Integreon, which has its corporate headquarters in Los Angeles. He is also the co-founder of EDD blog online.