Under scrutiny

The risk of litigation and the corresponding cost of electronic disclosure do not diminish in a downward economy and no company, large or small, is exempt from litigation or from the increasingly complex conundrum known as electronically stored information (ESI) disclosure.

Research commissioned by Kroll Ontrack finds that there has been a vast growth in ESI awareness and policy enactment over the past 12 months. This demonstrates that high profile sanctions cases and education regarding ESI have been a wake up call to corporations and their legal teams. However, many companies are failing to appreciate the legal and logistical issues involved in responding to requests for often sensitive information from regulatory bodies and ensuring that they can provide details of anything that qualifies as electronic information.

Our study found that while 70% of US companies have policies in place to deal with ESI in a litigation process (compared with 40% in 2007), only 53% (compared with 43% in 2007) of those in the UK can boast similar preparedness. Both figures represent an improved awareness of the need for policy relative to 2007, however, given the financial crisis, litigation is, for some, an increasingly necessary option and all companies need to be prepared in order to meet obligations in terms of data disclosure.

Responsibility
While more companies have an ESI readiness policy, there has been a marked decline in the number of organisations that included top executives in the policy’s creation and enforcement.

This, paired with the fact that respondents believe the company’s top executives should bear responsibility if their policy is called into question during litigation or an investigation, represents a worrying disparity for organisations. Furthermore, companies are increasingly looking to IT departments to shoulder some of the ESI burden. This shift in responsibility for development and enforcement can be seen to represent a more mature, collaborative approach to ESI and policy development. The undoubtedly complicated and technical nature of ESI requires a close alliance between legal and IT to ensure ESI strategies are legally compliant, all-encompassing and feasible. But, policy discussions should also include CEOs, so they are fully informed and supportive of the policy. If and when a policy is called into question is no time to play catch-up

The huge growth in the number of companies in the US which say they have an ESI policy has been driven by the introduction of the new Federal Rules of Civil Procedure a couple of years ago, which has led to a number of high profile cases. Fewer companies have a policy in place in the UK and the number of organisations in the US with a policy is soaring ahead. This can be attributed to the number of cases that people have read about in the US and the fines that were involved, ie Morgan Stanley and Qualcomm. What’s interesting is that last year, there were a whole host of barriers to successfully executing ESI policies cited by respondents. This year, one third of companies claimed that a lack of time and resource was preventing them from implementing any ESI policy successfully.

In the UK there are slightly different drivers. There have been fewer cases involving ESI, but companies will act when they see a threat from the regulators, or when they have faced a difficult case themselves and realise that they need to be better prepared. In the UK, there has been a slower progression and this can also be attributed to a lack of time and resources. In-house counsel believe that the judiciary is becoming increasingly well-informed about the importance of ESI in dispute resolution. In the UK there has also been a formal call by the commercial court for increased corporate responsibility in disclosure, in an effort to control litigation costs. Judges are talking about the need for companies to have clear policies in place to justify their actions—if documents are missing and there is no plausible explanation, the court will draw adverse inferences.

Challenges
While gaining information and education regarding ESI was a legal team’s greatest challenge in 2007, the greatest worry this year in both the UK and the US, is the growing volume of ESI. Furthermore, most companies are increasingly looking to IT departments to shoulder some of the ESI burden—ESI management is no simple task and a true partnership between legal and IT is required to make a company’s policy a success.

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