In the context of corporate governance, regulatory frameworks play a crucial role in determining the extent to which companies adhere to ethical standards and transparency. Consider the scenario of Company X, which operates in a developing country with weak enforcement of corporate governance regulations. The company has a board of directors that includes several individuals with significant ties to the management, which raises potential concerns about conflicts of interest. Recently, the local government has proposed a new regulatory framework aimed at enhancing corporate governance standards.

As a CFA charterholder, you are evaluating the implications of this regulatory change on Company X. Which of the following statements best reflects the role of regulatory environments in strengthening corporate governance in this context?