The Big Cleanup

Everyone knows the story of Jack Grubman, the Salomon Smith Barney analyst who allegedly upgraded a stock and used Citigroup Inc. CEO Sanford Weill to get his kids into an exclusive Manhattan preschool. And we've all heard about Doug Faneuil, the former assistant to Martha Stewart's stockbroker, who bragged in an e-mail to a friend, "Baby put Miss Martha in her place." Then, of course, there were the records of shipments of expensive paintings by former Tyco CEO Dennis Kozlowski to New Hampshire -- shipments that were allegedly empty boxes sent as part of a tax-fraud scheme.

Funny stories, to be sure. Cautionary tales? Yep: They all got busted by their very own e-mails and personal records. But unless a company's CEO is wearing handcuffs on the front page, archiving every e-mail, phone message and FedEx slip isn't always top of mind. The extreme cases like those of Mr. Kozlowski and Ms. Stewart, however, are serving as reminders that anything can happen, and they are changing the way companies think about storing even the most mundane records. Routine tax audits, surprise lawsuits by former employees and investigations into clients' activities can cause panic in a company that isn't sure what to save and what to shred. Any employee -- from an assistant to a CEO -- would be wise to learn the rules.

"If you're lax, get unlax -- now," says Ira Sorkin, a white-collar criminal defense lawyer with Carter Ledyard & Milburn in Manhattan. New regulations have created a clear set of rules, he says, and ignorance is no excuse: "Attorneys now realize that if you're asleep at the switch, you can get yourself and your client in trouble."

The Sarbanes-Oxley Act of 2002 is only the vanguard of a new rash of laws and regulations governing all things shreddable. "I've never seen penalties like this," says Linnea McCord, professor of business law at the Graziadio School of Business and Management at Pepperdine University, of the daunting prison sentences set forth in Sarbanes. "The reason is I've never seen scandals like this. Sarbanes-Oxley is the legislative attempt to impose a price. How lucky do you feel? Who wants to spend 20 years in prison for making a mistake?"

Companies and their employees do have some options. The same way throwing out all your single socks makes it easier to find the pairs, killing documents that companies don't need makes it easier to store the ones they must keep. Many offices have new policies on document retention, which state that any file not required to be preserved be destroyed. How many companies have caught on? "There's no question that the number of shredders we sell to commercial customers has seen huge, double-digit growth," says Mike Sacks, vice president, merchandising and business machines, for Staples Inc. The company's sales of shredders to businesses grew 70% in 2003.

Unless Eliot Spitzer has been hanging around your office, of course, shredding is no problem. "If documents are destroyed in the normal course of business, it's very difficult to prove that anyone is trying to obstruct justice," says Douglas Young, a lawyer at Farella Braun & Martel in San Francisco. It's only at the hint of a possible investigation, Mr. Young says, that all destruction must be halted.

Another, more advanced technique of data management is to hire a firm like Electronic Evidence Discovery, a 16-year-old Seattle business that helps companies minimize risk by creating document-retention programs and cleansing computer systems of unnecessary files. "This business began exploding as it became clear that defendants had to produce electronic discovery, which was being treated the same as paper discovery," says Tony Polk, the company's president. "When a plaintiff comes and says, 'Give me your data,' you've got to give them your data. And that's a serious issue."

What's the bottom line for the average employee who's not engaged in insider trading or suspicious preschool infiltration? For one thing, buy a shredder. Use written communication only when necessary. Follow your company's document-retention plan. If your company doesn't have one, suggest to your boss that it create one. When you do send an e-mail, imagine the chairman of the Securities and Exchange Commission standing over your shoulder. And never, ever refer to yourself as "Baby."