In Parmalat's wake, Italians crack down.

The U.S., famously, had Enron. Italy had Parmalat. And now the fraud scandal at the international dairy and food conglomerate has spurred tough new reform in corporate and securities laws in Italy, based in large part on the Sarbanes-Oxley Act (see page 15 for Italy's response to the law).

At least on paper, the new rules put Italy on a par with other developed financial markets. But, the Italians still have a long way to go, according to Matteo Tonello, a corporate governance expert at The Conference Board. "The recent reforms may provide a false sense of security to the investment community, because for each important advancement in governance legislation, much progress still needs to be made on the enforcement side."

The Conference Board notes that Italian companies still have much lower governance ratings than their counterparts in North America or the U.K. Indeed, Parmalat spA had been at the very bottom of 69 Italian companies rated by Institutional Shareholder Services (ISS)'s Corporate Governance Quotient in 2003, when the Parmalat scandal broke.

The Italian company, best known in the U.S. for its long-shelf-life milk, "had abandoned a sound expansion strategy for an obscure and misleading financial scheme that preserved the controlling power of the founder's family," The Conference Board found. "Fraudulent transactions at Parmalat were possible because of affiliations between directors and owners, independent board members' lack of expertise in finance and risk management, and corrupted entanglements with statutory auditors and the investment banks engaged by the company to place risky debt securities among retail investors."

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Tonello says that many of the shortcomings from the Parmalat scandal "have been corrected by the most recent legislation, which designs new channels of communication among enforcement agencies and carves out specific exceptions to the laws on the protection of privacy and use of privileged information. But the effective cooperation of enforcement activities is the result of protocols and arrangements that are still being developed."