When the large insurance company discovered its error, it was too late. One day earlier, the company had unwittingly handed over its master computer control log to be shredded by a private firm that specializes in destroying business records--and destroying them quickly.
"They had to reprogram the entire computer system," said Bill Toby, sales manager for the Van Nuys-based Golden State Fibres, one of the two Valley-based companies in the record-shredding business.
The possibility of costly errors, however, has not kept customers away from Golden State or the other firm, Bonded Destroyers, also based in Van Nuys.
Concern Over Espionage
Indeed, rising concern about industrial espionage has provided a boost for the two companies. They have also benefited from the mounds of printouts generated by the computer revolution--a revolution that was supposed to reduce the flow of paper but apparently did just the opposite.
"You can put so much information on computers today," Toby said. "Everyone has the information at their fingertips, but it's also printed out on paper. Companies don't want their competitors to know what they're up to, and a vice president certainly doesn't want his employees to know how much he is making."
Golden State shredded 30% more material in the first five months of this year than in the same period a year ago, according to co-owner Barbara Collet. However, profits for the company, which sells its refuse to recycling firms, are running about 20% behind 1984's pace because of a sluggish recycling market, Collet said.
At Bonded Destroyers, volume has doubled over the past 2 1/2 years and profits have risen at a "steady, gradual, very healthy" rate, according to co-owner Michelle Scozzari, who declined to provide specific figures.
The two firms report that most of their business comes from defense contractors, oil companies, insurance firms and law offices.
Many small businesses have begun purchasing their own office shredders in response to fears that employees or competitors might steal company secrets, according to George Shultz, president of the Los Angeles-area chapter of the Assn. of Records Managers and Administrators.
However, an increasing number of larger firms with a lot of records to destroy are turning to private destruction services because of the high cost of staffing and equipping their own shredding centers, Shultz said.
Bonded uses a portable mill to grind records on its customers' premises, while Golden State hauls materials back to a huge shredding machine at its one-acre plant on Sepulveda Boulevard.
"We're dealing with sensitive information," said a purchasing agent for a Valley insurance company that does business with Golden State. "You want your customers to know that it's being destroyed properly. Claim forms contain people's personal history. The world wouldn't end if anyone saw it, but we wouldn't want a claim form blowing around on Sepulveda Boulevard."
Risks Are Too Great
A security official for a Valley defense contractor agreed, saying the risks are too great to dispose of documents without first destroying them.
"If you look at it from the standpoint of industrial espionage--I'm not talking about the Soviet bloc, but about competitors--ordinary trash bins are open and somebody can go through and search in there," the security official said. "It's one of the best ways of getting sensitive materials.
"Once that trash company hauls that bin away, it becomes their property, and company X, Y or Z can buy it from them. Our adversaries have been known to go into those trash bins."
Both officials requested anonymity for themselves and their employers, saying the companies do not want competitors to know where the firms' records are being destroyed.
Firms Are Bonded
When the insurance company gave Golden State its master computer control log by mistake, the shredding firm was not held responsible. Nor are such firms accountable for documents that have been subpoenaed in court, company officials say.
Both firms are bonded and will certify that they have destroyed the material they were given. If the documents turn up later in the wrong hands, the companies can be held liable, officials said.
Although Golden State and Bonded are the only two records destroyers based in the Valley, similar firms elsewhere in Los Angeles County also have area contracts. Officials at the two firms maintain that there is very little competition between them and plenty of new business to tap in the Valley.
However, because of the sensitive nature of some records, the destruction business relies on trust and word-of-mouth promotion for customers. Neither firm does much advertising beyond the Yellow Pages.
High Start-Up Costs
Golden State and Bonded officials said that, although their business is growing, other destruction firms have not sprung up, largely because of high start-up costs.
Bonded operates two portable grinding machines that cost $150,000 each, and several trucks that haul documents. Golden State estimates the worth of its single shredder at $200,000, and has 10 collection trucks on the road each day, Toby said.
Because many of its customers would prefer to have their documents destroyed on their premises, Toby said, Golden State hopes to have a portable shredder operating by the end of the year.
Golden State, which has been in business for 10 years, shreds an estimated 1,500 tons a year, Collet said. The refuse is then sold to a recycling firm, which makes new paper, cardboard and cereal boxes from the waste.
Bonded, in its 25th year of operation, grinds more than 200 tons of paper each year at its customers' offices, under the watchful eye of corporate executives, according to Scozzari.
The grinder smashes the paper, depending on its quality, into tiny chips or cotton-like balls, neither of which is suitable for recycling, Scozzari said.
Both companies have a minimum fee for destroying documents weighing less than 500 pounds ($75 at Golden State; $120 at Bonded) and they charge 3 cents to 9 cents per pound for larger quantities. Golden State offers rebates to customers whose paper can be recycled for another use.
Collet and her husband started collecting papers for recycling 10 years ago in their home, spending $750 for the down payment on a truck. They began destroying documents in 1981. After moving to six successively larger facilities, they now serve 200 to 300 customers each year, and Collet estimates that the business today is worth $1.25 million.
Profits fluctuate greatly, depending on the recycling market, Collet said. Although the destruction end of the business is booming, Collet said the recycling end is "lousy."
She attributes slow sales to increases in freight rates and stiff foreign competition, which have made recycled paper almost as expensive as virgin pulp. Given the choice, most manufacturers would prefer to use virgin pulp if the prices are comparable, she said.
"Last year was a banner year for recycling," Collet said. "The price of the recycled paper product was up--there was a great demand for it. But this year, foreign companies are dumping virgin pulp on the market at a very, very low rate."