As credit department goes electronic, consider e-mail policy. (Legal Corner).

The hazards of e-mail, both retaining them anti not doing so, have made headlines. With Enron, on the one hand, a stored e-mail from in-house counsel raising concerns about accounting improprieties served as a roadmap for federal prosecutors. Several Wall Street investment banks, on the other hand, are facing multimillion-dollar fines for not keeping email messages. These recent headlines highlight the significance of e-mail communications and raise the question of the credit professional's e-mail retention program.

E-mail has revolutionized how the credit professional communicates with customers, the credit department and credit colleagues. Using e-mail, a customer, whether located across the city or across the globe, can provide the credit professional with hundreds of pages of confidential financial information to assist with credit analysis, immediately and inexpensively. The credit professional and customer can negotiate using e-mail over credit terms. Underscoring the explosion of e-mail use in commerce, businesses around the world are estimated to send over a trillion e-mails annually.

However, the ability to transfer and download confidential information carries with it some risks to the credit professional. Further, the credit professional must consider a policy of sharing and storing e-mails. A "deleted" e-mail does not necessarily mean it is expunged from the hard drive. Where a credit professional is provided a customer's confidential information through e-mail, what steps should the credit professional take to keep the e-mail confidential and out of a lawsuit?

E-Mail Communication and Litigation

Consider a common situation: a credit professional receives financial information for credit analysis purposes from a customer conditioned on signing a confidentiality agreement. The confidentiality agreement requires the credit professional to take reasonable steps to maintain the secrecy of the documents. The standard confidentiality agreement provides that the credit professional's company may be liable for damages if the confidential information is leaked. The customer's financials are transferred to the credit professional via e-mail. If the company inadvertently discloses the financial information electronically, the vendor may be sued by the customer.

A problem with e-mail from a litigation standpoint is that it creates a lasting record, unlike a phone call that is temporary. A vendor can be compelled to produce e-mailed material in litigation, unless otherwise privileged. If the credit professional's company has a uniform policy of e-mail expirations or shredding its mail unless it has some future value, the company embroiled in litigation may not be punished by a court if it does nor turn over the information.

If the vendor is embroiled in ...