Enron stresses need for archiving

Guilty verdict likely to encourage more prosecutions under SOX and other laws.

The recent “guilty” verdict on Enron executives is likely to hammer home the message that corporate governance policies are critical and the archiving of corporate communications is an important part of the process.

Ex-Enron chiefs Kenneth Lay and Jeffrey Skilling were last month found guilty of fraud after a high-profile trial delved into the machinations of the former energy giant. The demise of Enron, which went bankrupt in 2001, led to the US Sarbanes-Oxley Act (SOX) and other rules to make companies’ behaviour more transparent.

Paul Sarbanes, the politician who co-authored the act, said that Enron had been the “canary in the mineshaft” indicating broad corporate malfeasance. Legal experts said the latest verdict was likely to encourage more prosecutions under SOX and other laws influenced by such scandals.

Tracey Stretton, a legal consultant who acts for data recovery company Kroll Ontrack, said that even though there was no “smoking gun” – meaning an individual piece of evidence that on its own led to the conviction – the Enron case underlined the requirement for improved governance and data retention strategies.

“Every now and then you find a smoking gun, and it’s nice when you do, but, more frequently, [digital] evidence is being relied on to build a picture,” Stretton said. “I think the message [about the importance of retention policies] has got through to legal counsel but I don’t think the message has got through to companies. It takes an Enron to raise the profile again.”

The shredding of documents by Enron’s tax auditor Arthur Andersen was an important aspect of the Enron collapse and experts said that companies need an orderly, readily available archive of communications to demonstrate best practice.

Glenn Perachio, European sales director at email archiving firm Zantaz, said, “When you’re told you are being investigated, you have to stop deleting and have information accessible. The penalties are just too high for that not to be in place.”

Perachio added, “There’s a bevy of cases from WorldCom to Adelphia and Tyco that will embolden investigators to act and seek the assurance of chief executives that they know what’s going on.”

Stretton said that more firms are likely to consider archiving instant messages and text messages. She added that firms should weigh the words of New York state attorney general Eliot Spitzer who said: “Never write when you can talk. Never talk when you can nod. And never put anything in an email.”