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The Sarbanes-Oxley Act of 2002 (SOX) has had a significant impact on strategic management practices and strategies. Discuss how the Sarbanes-Oxley...

The Sarbanes-Oxley Act (SOX), passed in 2002, was intended to prevent scandals such as the Enron accounting fraud. It tried to prevent fraud in accounting, increase people's confidence in the financial reports of public companies, and safeguard shareholders. It created new laws about internal financial reporting and new requirements for financial audits of public companies. 


One of the most important effects the law had was that it made boards more powerful than management. Before Sarbanes-Oxley, boards had to some degree served under management. Boards now have greater oversight over management and must be more active about making sure management is abiding by the terms of the law. Boards have to take a more responsible role over management, and they also have to have greater technical expertise to do so. 


In addition, since the law was passed, companies have had to develop codes of ethics and conduct that apply to their senior management and financial officers. NASDAQ and the New York Stock Exchange also started expecting companies to disclose their codes of conduct, and the Sarbanes-Oxley law stated that the SEC would expect companies to do so as well. 


Sarbanes-Oxley also instituted the independent Public Company Accounting Oversight Board (PCAOB) to perform external independent audits of companies. In the past, companies were allowed to perform these functions internally. In addition, since the law was passed, shareholders have taken a more proactive role in the management of companies and used proxy votes to voice their opinions on matters such as executive compensation. The need to follow the provisions of the law has resulted in increased costs for public companies. 

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