During the past few years, a new set of terms has been introduced into the Uk corporate environment: Basel II, The Freedom of Information Act and The Companies Act. At first glance, it appears this lexicon would only be of interest to legal and accounting staff within a corporation – but not so. These terms are of equal importance to data centre staff.
The new language represents a sea of change in how transactions related to corporate operations and fiscal practices must be conducted, recorded and audited. This means that relevant records and communications – including e-mail – must not only be backed up, but retained and archived in an immediately searchable format. As a result, the data centre professional’s role will change and responsibilities will expand in response to the greater demands placed on already-strained departmental resources.
The Onus of Electronic Discovery Falls Upon Data Experts.
Over the past decade, a number of corporate financial scandals – Enron, WorldCom, Arthur Anderson – have had devastating effects on financial markets and individual investors. In response, the U.S. Congress passed the Sarbanes-Oxley Act in 2002 (soon to be implemented to a certain extent in the UK in 2006) to tighten federal securities law and impose strict requirements related to accounting, auditing and compliance practices. Corporations, and individuals within corporations, now face both civil and criminal penalties for non-compliance with these requirements.
For example, Morgan Stanley was recently ordered to pay financier Ron Perelman millions of dollars after the bank allegedly provided false statements during Perelman’s sale of his company, Coleman, to Sunbeam. The deal involved Sunbeam stock, which plummeted when the company’s shaky financial health was revealed.
According to Arnaud Viviers, president of Strategic Data Retention in Atlanta, the key to this award was the discovery of 1,600 back-up tapes containing communications that allowed the jury to find clear evidence that Morgan Stanley acted fraudulently in hiding information from Perelman. “Cases like these have a tremendous impact on data centre professionals,” Viviers says. “The compelling evidence in this case was revealed because a huge amount of data could be quickly recovered and considered by the courts.”
The recovery of communications and transactions – also known as electronic discovery – has proven to be the linchpin in a growing number of high profile cases. As a result, data centers can expect to play a larger role in compliance efforts, internal auditing processes and, ultimately, corporate litigation. And while this change offers tremendous opportunities, it also places great demands on current departmental structures.
New Roles Emerge in Response to Data Demands
Consider this scenario: Charges of fraud are levied against a medium-sized company and the courts demand copies of all electronic communications exchanged between 25 corporate executives and others involved in a transaction that occurred over an 18-month time period. A team of lawyers appear on the premises and wait – charging thousands per hour – while data centre personnel attempt to identify, isolate and produce the subpoenaed materials.
When faced with this challenge, data centres can respond in one of two ways: they can rely upon their own staff to search and retrieve the documents, or they can outsource the process to electronic discovery firms, which use a variety of techniques including non-native restoration to access files. If they choose to use their own staff, it can take days or weeks to accomplish the project – putting a significant drain on internal resources. In addition, data centres risk spoliation because of not knowing how to preserve the data, and could technically be an employee of the company under question. No matter which path they choose, data center professionals must now view their jobs and responsibilities in a new light.
Liability May Lie with Data Center Staff
Legislation like Basel II and the Companies Act requires corporations to devise internal policies for governing areas related to the legislation. Company executives are held liable for the development and execution of these procedures but, once they are in place, the data centre and its staff become legally responsible for implementing them.
Secondly, data center staff must wrestle with the technical and logistical demands that court-ordered data retrieval places upon them. It’s no longer good enough to simply back up accounting, legal and electronic communication records on magnetic tape or optical disk. Leadership must determine what types of information must be saved, and for how long. In addition, material needs to be archived in such a way that the data can be searched quickly and easily in a short period of time. Plus, data centre staff need to be able to ensure – and testify – that no data was lost, destroyed, misplaced, tampered with or damaged in any way.
Team Approach Requires “Hybridization”
Thirdly, according to lawyer Carolyn Southerland, Special Counsel with Baker Botts L.L.P. in Houston, data center staff must become an active part of an interdisciplinary corporate team that includes representatives from the legal and records management departments. “Open communication is imperative,” she says. “To devise a system that will adhere to statutes and regulations, as well as internal records management policies, data centers must understand the relevance of the information that needs to be stored and retrieved. Likewise, records management and legal directors must work more closely with IT experts to determine the most efficient and effective methods to archive and recover data.”
“This represents an important new responsibility for data center professionals,” Viviers adds. “There will be an increase in cross-functionality within corporations, and data centre staff will develop expertise and assume a role that is a hybrid among the data technology, legal and accounting disciplines.”
Although the professional demands will be great, changes brought on by the increases in the regulatory landscape and the advent of electronic discovery will nevertheless provide great career opportunities for data centre professionals. The breadth of knowledge and expertise that will be demanded of them will undoubtedly expand, and these professionals will play a vital role in determining the structure of those processes that will ensure a company is in compliance with federal law. Ultimately, this skill set could conceivably save a company from devastating legal judgments, fines and penalties – and perhaps even preserve its very existence during costly and potentially destructive cases.
*Reprinted with permission from the July issue of DCM Magazine. The following article was written by Shawn Strickler, eMag’s Director of eDiscovery Solutions.
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