Tuesday, May 12, 2009

Industrial Strength Governance

Foreign companies choosing to become U.S. domiciled public entities must have to take a big gulp before signing on the dotted line. U.S. public companies are subject to myriad rules and regulations of their conduct from U.S. GAAP to SEC rules on governance and ethics.

Board of director qualification is one of the hurdles that have been tripping up the Chinese companies joining the U.S. public company crowd. Directors qualifying as independent are hard to recruit, but the person meeting standards imposed by Sarbannes-Oxely with regard to accounting and finance experience presents a particular challenge for Chinese companies. Individuals knowledgeable in U.S. GAAP accounting are easy enough to find, but it is a rare bird who is also fluent enough in Mandarin or Cantonese to participate in a board meeting (or vice versa).

China Industrial Waste, Inc. (CIWT: OTC/BB) recently appointed four board members in one fell swoop. All qualify as independent. One of the new appointees, Henry Wong, is an alumnus of both PriceWaterHouseCoopers and Deloitte Touche. While he is not certified as a public accountant in the U.S., he is experienced enough as a credentialed accountant and auditor in Hong Kong. The other three appointees, Francis Leong, Long Zhang and Professor Chunyou Wu, to are also “industrial strength” with experience and education in finance, law and business administration, respectively.

My guess is we will see the names of these gentlemen again as appointees to the boards of other public companies based in China. We also expect to see more of China Industrial Waste. Its stock symbol showed up on my radar screen as I looked for companies that will benefit from China’s Central Government’s newfound concern for the environment. CIWT processes industrial waste and offers pollution treatment and waste management services in Liaoning Province. It is not a large company - $12 million in trailing sales, but it is profitable and operations generate a fair amount of cash. At 6.9 times trialing earnings, the stock appears to be a bargain.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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