One of the big changes with Sarbanes Oxley was the requirement for audit committees to be composed entirely of independent directors. No one is supposed to have any business or family ties with the chief executive officer.

But a recent study from two Purdue University academics, Earnings Management and Social Ties, showed that it's the social ties that are causing all the problems. If a CEO has social ties with directors, the firm is more likely to engage in earnings management and give the CEO bigger bonuses.

The study looked at Fortune 100 firms from 1996 to 2005. They then took into account mutual alma mater, military service, regional origin and third party connections to establish important links with the CEO.

"Whether it is conscious or not, these shared characteristics and experiences ease communication and facilitate mutual understanding, thereby fostering personal connections,'' they say.

This is critical because social ties were not included in the independence criteria of Sarbanes Oxley. And as the researchers say, this raises "the question of whether social ties have become more important as an alternate opportunity for CEOs to capture the audit committee."

"Consistent with this idea, we find a high incidence of firms replacing their financially and familially affiliated audit-committee members with socially affiliated members during the post-SOX period,'' the researchers say. "Although the enactment of SOX effected an overall decrease in audit committees' conventional affiliation to the CEO, 24% of the firms whose audit committees lost conventionally affiliated members appointed socially affiliated replacements."

What this study shows is that Sarbanes-Oxley failed to ensure firms employ independent directors. The question of independence was not fully defined.