Today’s Supreme Court ruling reversing the decision against Arthur Andersen
is big news in the compliance world. My bet is that it will have two important
effects–both good. 

The first is that, once again, it will be OK to destroy documents in
accordance with a company’s retention policy. The second is that it is going to
become even more obvious to companies that they really do need to have a
carefully designed document retention policy, along with a way to ensure that it
is implemented and monitored.

A couple of brief quotations from today’s unanimous opinion help show what
was at stake here. In these quotations, the "petitioner" is Andersen.
Referring to the instructions given to the jury in the original trial in a Texas
district court, Chief Justice Rehnquist, writing for the Court, said:

The jury instructions failed to convey the requisite consciousness of wrongdoing. Indeed, it is striking how little culpability the instructions required. For example, the jury was told that, even if petitioner honestly and sincerely believed its conduct was lawful, the jury could convict. …"

“[D]ishonest[y]” was no longer necessary to a finding of guilt, and it was enough for petitioner to have simply “impede[d]” the Government’s factfinding ability. “Impede” has broader connotations than “subvert” or even “undermine,” and many of these connotations do not incorporate any “corrupt[ness]” at all. Under the dictionary definition of “impede,” anyone who innocently persuades another to withhold information from the Government “get[s] in the way of the progress of” the Government.

You can see why other companies were worried by the original, lower court
verdict. Given this concern with any impediment and the lack of any need to find
conscious wrongdoing, companies were suddenly, and very understandably, in doubt
as to whether they could safely destroy documents in the normal course of
business. 

Today’s ruling puts routine, orderly document destruction back on
track.  As the Court noted in its opinion:

“Document retention policies,” which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business. … It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances.

"Valid" and "comply" are key words in this last sentence.
It goes without saying that a company needs to make sure that its retention
policy is, in fact, consistent with the requirements of Sarbanes-Oxley and other
laws. A company also needs a way to assess and enforce the
"compliance" part of this sentence — the policy has to be followed.
Although today’s decision focused on the instructions to the jury in the
original trial, it is reasonable to suppose that part of the perception of
"subversion" and impediment in the original case arose because
Andersen had apparently not been consistent in implementing its retention policy
— until the Enron problems surfaced — when there was suddenly a focus on
hurried implementation.

Now that we know that it is once again safe to implement a retention policy
and to destroy documents, it seems like a good bet that organizations will want
to make sure that retention policies are perpetual, consistent, monitored, and
routine.

Share