Just because a company has increased the formal side of the independence of its board of directors, does not actually mean that that it has improved its corporate governance standards, a recently-released study has warned.

Published in the February edition of the Academy of Management Journal, the study, conducted by researchers James Westphal and Melissa Graebner, noted that corporate CEOs are adopting tactics which give an impression of high board independence – something which is traditionally equated with good corporate governance practices in the financial community, the report said. However, this appearance of board independence was only superficial, and was being done to manipulate investment bank stock analysts into producing favourable reports of the company, they said.

Surveying 1,300 CEOs from large companies in the US, the report noted that while many companies appointed directors which had no formal ties to the company he is charged with monitoring, but in reality they are typically connected socially with its senior management – most notably the CEO. While this may give an appearance that the company’s board of directors had a high degree of independence from senior management, such a board may in actuality be influenced through the personal ties that its individual members have with the company’s CEO, the report said.

The latest research is part of series of studies conducted by the authors on impression management– which examines how companies manipulate outside impression of its management practices, without effecting actual change in the company itself. The study found that by engaging in activities that are typically pleasing to stock analysts, they increased the likelihood of a stock upgrade by 36 per cent, and reduced the likelihood of its downgrade by 45 per cent.

“Obviously, the CEOs were pushing the right ideological buttons,” noted the study’s authors, who also suggested that companies include information on the social relationships of board members to CEOs as part of standard information provided in basic company literature.

“If the CEO is a college classmate of a director or they worked together for the same firm or they are board members of the same organisation, these relationships are probably going to affect a company’s governance. Why should it be hard for stock analysts or investors or other interested parties to get access to that information? Certainly there is a case for transparency here,” they said.

The proposal will now be discussed in a public hearing on March 18, with the commission expected to vote on it in April.

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British aerospace company BAE Systems has agreed to pay nearly US$450 million in fines to settle longstanding bribery allegations in the US and UK.

The US portion of the settlement, which has been hailed as an example of increasing willingness of US federal authorities to impose the country’s tight ethical standards on foreign defence contractors, includes a fine of US$400 million to settle a charge of conspiring to make false statements in connection with regulatory filings and undertaking – about whether the company had created an anti-corruption programme. BAE also agreed in its agreement with the US Department of Justice (DoJ) to strengthen its compliance programmes.

It will also pay a penalty of £30 million to settle a charge by the UK’s Serious Fraud Office (SFO) of breach of duty to keep accounting records in relations to payments made to a former consultant in Tanzania. Part of the UK fine will be made to an as-yet unnamed Tanzanian charitable foundation. The agreements also stipulate that BAE will plead guilty to both the US and UK charges. For the SFO, the case represents a victory of sorts. The agency in 2004 had initially launched an investigation into BAE’s alleged bribery payments in Saudi Arabia, a case that spilled over into Czech Republic, Romania, South Africa, and Tanzania. The case was then scuttled in 2006, causing widespread public criticism for the office.

Both settlements are in connection with allegations that the company made commission payments to a marketing consultant related to the sale of a radar system to Tanzania in 1999. BAE admitted that it failed to accurately record the payments in its accounting books, and that it failed to thoroughly examine the records to make sure they were reasonably accurate and permitted them to remain uncorrected.

Richard Alderman, director of the SFO, said in an interview with the Wall Street Journal: “The SFO has been totally vindicated.”

“This is a first and it brings a pragmatic end to a long-running and wide-ranging investigation. I’d … like to acknowledge the efforts made by BAE to conclude this matter and I welcome its declared commitment to high ethical standards,” he said separately in a statement.

“These settlements enable the company to deal finally with significant legacy issues,” BAE chairman Dick Olver said in a statement. He added that the company has systematically enhanced its compliance policies and processes in recent years, and regretted and accepted full responsibility for its past failings.

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