Compliance

05:15 PM
Courtney Fletcher and Liam Ferguson, Managing Directors, Technology Advisory Services, Mesirow Finan
Courtney Fletcher and Liam Ferguson, Managing Directors, Technology Advisory Services, Mesirow Finan
Commentary
50%
50%

E-Discovery: Remembering Forgotten Data

Electronic discovery is proving to be one of the most powerful tools in the corporate and legal arsenal. As corporations come to rely more heavily on e-discovery, however, some serious flaws in traditional e-discovery processes have become more and more prevalent.

As the go-to source for information in complex litigation, electronic discovery is proving to be one of the most powerful tools in the corporate and legal arsenal. Organizations in the U.S. alone are poised to spend more than $4 billion on e-discovery by 2010. As corporations rely more heavily on e-discovery, however, some serious flaws in traditional processes have become more and more prevalent, including a lack of a strategy to manage data before entering into litigation, thus unwittingly turning a blind eye to data that can make or break a case.

Typically e-discovery is used as a reactionary tool, which results in ad hoc, piecemeal processes. Incomplete mining of data presents a real quagmire for companies working through litigation. A recent Gibbons, Dunn & Crutcher survey of e-discovery-related proceedings found that more than half of them contemplated the use of sanctions for noncompliance. In fact, of all e-discovery cases from the first half of 2009, roughly 36 percent resulted in the award of sanctions. Most of the cases in which sanctions were granted were due to spoliation of data. With a proactive approach in place, companies can avoid sanctions, increase the likelihood of a favorable outcome in litigation and decrease disruption of operations caused by reactive measures.

Furthermore, instituting an e-discovery strategy prior to entering into litigation allows corporations to securely preserve electronic evidence so that it can be easily accessed for future cases. Digging for data on the back end can be a real cost burden. Having all relevant data -- old and new -- at one's fingertips provides peace of mind and potentially significant cost savings on services and sanctions.

It is imperative that an e-discovery process unearth all relevant data, including that which may be locked up and long forgotten in far-flung corners of a network. This forgotten, or "structured," data is perhaps the single biggest missed opportunity for defense in e-discovery, as it often goes overlooked or completely ignored. Traditional e-discovery tactics focus on uncovering only a small portion of the data puzzle -- "unstructured data," which includes e-mails, text documents and spreadsheets. This flaw in process is leaving heaps of structured data literally untouched. Evidence contained within transactions and sales information as well as general ledger functions found in legacy systems are simply being dismissed or forgotten.

Companies often rely on in-house IT to retrieve the unstructured data. As they target their efforts at retrieving this single data set, they often miss the massive storehouses of structured transactional data held in legacy and proprietary computer systems. This lack of engagement is frequently the result of a failure to appreciate the significance of structured data.

Unlocking Structured Data

Of course unlocking structured data is no small task. In order to scour potentially billions of transactions, a corporation must not discount unused or old legacy systems or proprietary systems with custom software. Moreover, determining the quality and accuracy of the systems is a significant but necessary hurdle that needs to be cleared.

Structured data is compiled and built up over years and often is convoluted by the irrelevant information surrounding it. After data is extracted, it must be transferred to a system to be analyzed. Analyzing the data is a critical step in the process of determining what information is usable in litigation -- and it often is during analysis that errors occur. In this step, experts determine what information should -- or shouldn't -- be produced in response to a discovery request and what issues may potentially arise stemming from that data in the dispute.

If handled improperly, the discovered information can legitimately and significantly increase a company's risk of exposure. On one hand, the company may face court sanctions for failing to comply with e-discovery orders. On the other hand, over-sharing information may provide opposing counsel with data detrimental to the company's current and future cases. The importance of establishing proper parameters cannot be overstated as companies aspire to mine relevant, actionable information from fragmented legacy and proprietary systems, mitigate e-discovery exposures, and enhance litigation strategies.

Beyond the logistical challenges of simply uncovering a relevant data set through e-discovery, corporations often become involved in disputes over timing and scope of discovery requests. When opposing counsel finds itself without the data needed to support its argument, the next step often is to press excessive discovery requests, effectively leading the company in question to settle. Feeling as though their hands are forced, companies open themselves to overly expensive and broad e-discovery demands because they lack the necessary in-depth knowledge of both the data and the systems in question. With the right expertise, however, it may be possible to effectively rein in the extent of the discovery request or garner an extension by explaining to the court the technical issues involved in retrieving the data.

Being able to extract, manage and analyze the data also allows a corporation to make a more informed decision on case strategy. An understanding of structured data also enables a company to gain a clearer picture in contexts other than litigation, such as due diligence before mergers or acquisitions. The ability to extract financial data for an extended period of time from a legacy system makes it possible to provide a more complete report on the financial health of the target company.

There is no debate as to e-discovery's increasingly prominent role in litigation. The future of e-discovery to effect positive outcomes in litigation, however, will come only when corporations shift their posture from reactive to proactive. The processes -- and the related investments -- will be sold short if e-discovery is thought of as a means for managing litigation rather than as a means for being prepared should litigation arise.

Courtney Fletcher and Liam Ferguson work across products at Mesirow Financial Consulting, with a specialized focus on enhancing the firm's technology advisory consulting business, including in the areas of complex data analytics and electronic discovery. Ferguson, who has more than 13 years in the consulting industry, most recently was a principal at LECG, where he led the Data Acquisition Management & Analysis practice. Before joining Mesirow Financial, Fletcher also was a principal at LECG, in the Washington, D.C., office, where he co-led the Data Acquisition Management & Analysis practice.

More Commentary
A Wild Ride Comes to an End
Covering the financial services technology space for the past 15 years has been a thrilling ride with many ups as downs.
The End of an Era: Farewell to an Icon
After more than two decades of writing for Wall Street & Technology, I am leaving the media brand. It's time to reflect on our mutual history and the road ahead.
Beyond Bitcoin: Why Counterparty Has Won Support From Overstock's Chairman
The combined excitement over the currency and the Blockchain has kept the market capitalization above $4 billion for more than a year. This has attracted both imitators and innovators.
Asset Managers Set Sights on Defragmenting Back-Office Data
Defragmenting back-office data and technology will be a top focus for asset managers in 2015.
4 Mobile Security Predictions for 2015
As we look ahead, mobility is the perfect breeding ground for attacks in 2015.
Register for Wall Street & Technology Newsletters
Video
Stressed Out by Compliance, Reputational Damage & Fines?
Stressed Out by Compliance, Reputational Damage & Fines?
Financial services executives are living in a "regulatory pressure cooker." Here's how executives are preparing for the new compliance requirements.