It is to the enormous credit of the 88,000 people who work for BAE Systems that while the company has been buffeted by politics, they have got on with business.

BAE increased its sales by 9 per cent to £13.8 billion last year. It raised operating profit by a third. Net profits, with money from selling off its stake in Airbus, nearly tripled to £1.6 billion. It now has the cash to pursue multibillion-dollar acquisitions in the US.

Judging by the numbers alone, BAE is in rude health. It is poised to cement its position as Europe’s leading defence company. It is positioned to make at least one or two strategic purchases in America this year. And it is primed to return more cash to shareholders in the medium term.

But BAE Systems is not being judged these days by financial metrics as much as it is by business ethics. It is here that BAE’s leadership — Dick Olver, the chairman, and Mike Turner, the chief executive — is letting the company down.

BAE can only draw a line under its past and move on to a proud and profitable future if it addresses its history. The Government’s decision to abandon the Serious Fraud Office investigation into BAE’s dealings with Saudi Arabia in the 1980s was a short-term gain for the company. Riyadh was threatening to pull the purchase of 72 Eurofighter jets, but will proceed with the £10 billion contract. Thousands of British jobs have been safeguarded. And, according to one person with close ties with the Saudi Royal Family, the threats of withdrawing cooperation on terrorism were not idle.

Nonetheless, the whiff of corruption will continue to linger around BAE. Some investigators at the SFO believe that their inquiries were, finally, leading to evidence of bribery. Having been cut short in their investigation of the Al Yamamah deal, there is a determination at the SFO to explore in full the other BAE deals in question.

Politically, BAE has become tarnished by the Government’s decision to cut short the due process of law. This has repercussions both in Westminster and on Fleet Street. Politicians will question the company’s integrity. The media, too, will continue to pursue every hint of unresolved impropriety.

This matters deeply for BAE because its customers are the British and American taxpayers. Their governments are the ultimate purchasers of defence equipment. In the event of a BAE deal in the US, congressmem and senators in Washington, perhaps driven by protectionist impulses, will leap on the unresolved ethics issues.

So far, BAE has taken a “thankyou sir, may I have another” approach to the allegations of scandal. But the board needs to do more than grin and bear it.

It may well be the case that the company never acted illegally. It is less clear whether it upheld in the 1980s the standards of corporate ethics of which it would be proud today. BAE should follow the lead of companies from Bertelsmann to BP and appoint an independent panel that reviews past behaviour, comes to a public judgment on its history and sets out standards for the future.

BAE does not need to be trapped by its past. If it takes ownership and responsibility for its history, the company can regain control of its future.

No monkey business

Is foreign ownership a good thing or a bad thing? Well, it depends how far away the parent company is from the subsidiary: the further, the better.

This is the provocative answer that Colin Mayer, Dean of the Saïd Business School at the University of Oxford, offers in response to one of the most pertinent modern business questions. (Yesterday Professor Mayer delivered the second in the series of the Best of the MBA lectures made available on TimesOnline — if you are the Chancellor, you may want to listen to it on your iPod instead of Arctic Monkeys; if you’re not that cool, you can just print it off.)

The average distance between a parent company and its subsidiary is, apparently, about 20 per cent of the circumference of the world. This may seem like the kind of arcane information that gives business schools a bad name. But the conclusion drawn raises a serious question about the kinds of takeovers shareholders and employees should welcome.

The UK has a high proportion of foreign-owned companies. British businesses have been on the receiving end of a spate of cross-border M&A. Companies from Egg to Gallaher, Corus to BAA have come under foreign ownership.

Professor Mayer points out that multinationals have more to invest than home-grown, standalone companies. He also argues that while multinationals retrench more deeply when the going gets tough, they allocate capital more efficiently overall — particularly when there is a greater distance between the head office and the subsidiary than when they operate on each other’s doorsteps. This is, to a certain extent, a function of the fact that the most successful multinationals carry expertise and capital from the developed world into emerging markets.

The geographical distance between the two is great. But it also makes sense that companies do well when they have access to the deep pockets of a multinational, but enough distance from the global chief executive to get on with the job.

Ever Green

Many years ago, when Stephen Green was a young man, Midland Bank bought Crocker Bank in the US and allowed the existing management to continue to run it. Cue a complete disaster as Crocker turned out to be a crock. Fast forward 25 years and HSBC (the owner of Midland, which fell into its hands partly because it was so enfeebled by the Crocker saga) appears to have made exactly the same mistake. After it bought Household in 2003, it allowed the existing management to continue running the shop with minimal interference and supervision. Mr Green was, of course, party to the decision to buy Household. But he was, then, in the shadow of Sir John Bond.

He had a choice: either speak up and jeopardise his future career, or keep quiet and address the problems when he took the helm.

He opted for the second. It is an approach that is reminiscent of Bob Iger at Disney, who stood squarely behind Michael Eisner for years and then changed course when he was gone. Mr Green has been unravelling parts of Bond’s bank. The (garbled) message is that this is Green 2.0 — that he has learned from past mistakes.

In 2001 Paul Myners, the former M&S chairman, encouraged pension funds to show a little daring and invest in alternative assets, such as private equity. This week, he said that big private equity deals put jobs at risk. Yesterday it emerged that Guardian Media Group, which he chairs, is in talks with private equity about selling AutoTrader magazine. This may sound out of key but all three make sense.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee