Pushing paper

Document management and retention is not just an IT issue. Instituting a good policy can help avoid regulatory run-ins, as well as build a library of knowledge for future generations.

In comparison with the glamour of making multibillion dollar deals and raising ever bigger funds, an activity as seemingly mundane as managing documents admittedly pales. A straw poll I conducted found that a number of private equity firms do not have a document retention policy and many of those surveyed didn't seem to know much about document management. This includes one of the biggest names in private equity, although a senior executive at the firm said that the firm is endeavoring to ?get it right.?

Firms that have institutionalized document management and retention say the main drivers of the policy are business and regulation. On the latter point, the US last December amended a rule governing the use of electronic documents for any party litigating in US federal courts.

The amendment prompted American Capital to focus on the technology aspect of document retention, says Heather French, a vice president and associate general counsel, who created the policy for the firm and oversees its document management department. But document retention is not merely an IT issue: it is both a legal and an IT issue that extends to all parts of the organization.

Publicly traded American Capital's document retention policy is to keep most of the firm's documents that have a business or legal purpose for seven years, seven years being the length of time recommended by the US Association of Corporate Counsel (which exceeds the statute of limitations by two years). Some documents, however, are never destroyed, such as settlement agreements and documentation on every transaction, from due diligence materials and transactional documents, to signing and other ancillary agreements.

The UK's 3i has a ?high level, principles-based? policy for documents, says John Tracey, the firm's head of group business and IT services. The policy concerns the use and control of information, which covers the management of confidential and price sensitive information, the use of external email, the level of documentation required during the conduct of business, the securing of data, the granting of permissions and the retention of documents.

?We've focused on getting the rules around the key documents very clear,? he says.

3i has several rules for managing its documents. For retention, it's ?safety first.? Says Tracey: ?We tend to keep our documents until the point of which nobody has an interest in them, which is typically some time after the investment has been realized. We have people focused on the regulatory and financial side and they have an interest in those cases beyond that point of sale.?

Depending on the jurisdiction of the deal, 3i can keep documents for up to seven years beyond the sale of the investment, or longer if there is valuable knowledge in the deal documents.

All documents are saved in both paper and electronic format. Typically, only the final versions of deal-related documents are retained, although all drafts leading up to the closing of the deal are saved. But how they are stored depends on the individual firm.

The key storage area for 3i is an online portal; Tracey says the emphasis is moving towards electronic documents. All documents get scanned and stored into the portal, although paper copies of signed documents tend to be the master copy. The paper copies are stored physically close to the deal team. He advises: ?for electronic documents, make sure you have proper backup plans.?

American Capital also has an online database for all of the firm's closing binders on deals that have been executed. Paper copies are stored offsite and all other documents are stored in internal shared drives.

What about other forms of documentation? French says that storing emails is an ongoing discussion at the firm. ?We have given guidance to our employees that they should keep any documents, including emails, that have a business or legal purpose,? says French. ?If anyone is subject to a legal hold, we take steps to preserve any documents from that point. We don't keep instant messages and we don't keep voicemail.?

Permissions to access documents at 3i are controlled by the deal team, while American Capital grants access through the IT department and requires approval from the ?highest levels.?

For firms that are thinking about document management and retention, take a few words of wisdom. Tracey advises: ?How do we want to structure it, how do we make the portal really intuitive and user friendly and how is it going to fit into people's day to day working pattern? All these questions are critical because to be successful people have to want to use the portal and be able to get value out of it ? mandating its use just doesn't work.?

French counsels: ?Make sure the legal and IT departments are communicating with each other. Really understanding how documents are being kept and destroyed is the most challenging part of this process. Second is coming up with a policy that can actually be implemented. I've seen a lot of policies that are extremely complex and equally unrealistic to implement. I would prefer to be in a position in which I can say we are enforcing our policy, even if it is not as detailed and precise as some other policies.?