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SEC Auto Exchange Company and Good Corporate Governance

The SEC Auto Exchange company is an organization based in Thailand that is involved in the import and purchasing of cars into the country which are subsequently resold. Its particular focus is on luxury cars ranging from coupes and sports cars to sports utility vehicles. Most of these are from popular Japanese and European brands such as Toyota and Porsche. The company further supplements this import and sale with after-sales service which is a reason for its success in Thailand (Google Finance). SEC Auto Exchange has come a long way since it was originally formed in 1991 and in its headquarters in Bangkok and subsidiaries around the country; it now boasts an employee workforce of above three hundred individuals.

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The SEC Auto Exchange company boasted a concentrated level of ownership. This was in tune with most of the organizations in the country and the company was only listed on the stock exchange in the year 2006. There was a level of close kin group control involved which led to decision-making behind closed doors and mostly under confidence without the feature of transparency and open consultancy (Nikomborirak). Certain regulations were in place to make things more transparent with regards to the company. There was a requirement for submission of such transactions that received shareholders resolutions and also regarding review of auditors’ reports and transactions that may be related. There were also SET imposed regulations regarding disclosures and structure of the board and shareholders’ resolutions were required for exorbitant transactions. The company does not formally list obligations to shareholders, pointing to a lack of a defined governance code.

The company’s corporate governance thus has severe problems which have been illustrated by the recent problems it has faced in Thailand that drew much public attention. One is the case of embezzlement of assets and fraud by one of the top executives of the company. As events transpired, Mr. Sompong was able to use the company’s luxury cars in the warehouse to settle off his personal debts and then disappear from the country with SECC’s cash which roughly amounts to a loss of 60% of the company’s total assets (Chudasri). This presents a problem of transparency in management and adequate representation of the transaction made and decisions taken at the top. It also means a great deal of unregulated control in the hands of top executives which allowed such fraud to be perpetrated.

There is also a problem in the financial representation of the company which is crucially linked with good corporate governance. Its accounting and finance department reportedly made entries of imaginary car purchases into the books and failed to make a clear representation to shareholders. This has been coupled with complaints regarding the misconduct of securities marketing officers who are said to have been involved in not providing payments to shareholders who have sold their shares.

There is also a culture of patronage in the company (Jongsureyapart). This has resulted in the increased use of nominees in the company. This is a part of the larger problem in Thailand where about 21.4% of the total market capitalization in the Stock Exchange of Thailand is said to be accounted for by nominees. Perverse incentives have pervaded the corporate board in the company, with members in a sense subservient to the CEO whose actions the board is required to oversee. Also, an increasing amount of the board of directors is also serving as CEOs of other companies which create a conflict of interest in some cases.

With regards to the independence of the board of directors and some of the committees, there are concerns of independence and neutrality. The CEO-Chairman separation is crucial for good corporate governance and this was not the case with SEC Auto Exchange (Preetam). The company further does not disclose the frequency of board meetings during the year as well as the attendance records which are a strong indicator of the nature of oversight the board has shown and a lack of presence of such records in the financial statements points to a deficiency of transparency.

Thailand has seen the gradual creation of SRI funds in the country but the presence of an SRI index is still lacking. This presents problems in some areas of corporate governance in a country that has seen its share of problems. The Stock Exchange of Thailand has been actively involved in encouraging their creation and by extension encouraging responsible business strategies in the corporate world. As such, an index is not present as yet and thus the SEC Auto Exchange company escapes any scrutiny though it (Governance).

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There is much room for improvement in the structure of corporate governance of the company. Many steps could be taken to represent more adequately the transactions that the company undertakes and what the top level executives are capable of doing as this has badly hurt the company. In this regard, some amount of benchmarking can be done with the top defined companies in Thailand in the area of corporate governance to identify their best practices. Banpu Public Limited and The Siam Commercial Bank are two names that are held in good esteem in terms of governance (Corporate Governance Disclosures in Thailand). One step that could be taken should be the appointment of independent directors that are free from the influence of executives. Furthermore, nomination and remuneration committees should also have completely independent directors so as to monitor the pay at the top. There is also the need for creation of an orientation program for the directors to familiarize them with the company’s operations quickly.

Another necessary step for SEC Auto Exchange Company is to allow the board independent access to management (Post Reporters). The company should further disclose guidelines for matters requiring approval of the board as well as the types of material transactions the board must approve. In addition, all such measures pertaining to the board of directors and the audit and remuneration committees should be disclosed in the financial statements of the company as recommended by the Cadbury Report and should be signed by the top executives, in accordance with the trend spurred by the new Sarbanes Oxley Act in the United States following accounting scandals (Santivimolnat). This would both address issues of corporate governance directly and by improving the representation in financial statements which has an indirect effect in improving governance.

These internal changes aside, the company also needs to amend its policies with regards to the regulation present in Thailand (Polkuamdee). There are measures in place by the Stock Exchange of Thailand which are not implemented at a widespread level in Thailand because of a lack of penalties. There are preventative measures in place by requiring submission of transactions that require shareholder resolutions and a review of the transactions that may be interrelated which are not completely implemented by the company.

The SEC Auto Exchange Company is one of the prime examples of exploitation by executive management without the presence of good code of corporate governance. A person from the upper echelon was able to stow away billions and flee with nearly 60% of the company’s assets and it could not be discovered by either the reporting or by the board of directors assigned to oversee management. Therefore, it is an example of the chronic failure of corporate governance and the requirement of strong measures regarding self regulation as well as tighter oversight by the Securities and Exchange Commission in Thailand as this issue impacts other organizations in the country as well as investor confidence. With the establishment of the steps mentioned and greater involvement by the Thai regulators and enforcers, such incidents may be avoided and SEC Auto Exchange may not have to suffer such types of losses in the future.

References

  1. Nikomborirak, Deunden. “Corporate Governance in Thailand: Glancing Behind and Looking Forward.” Thailand Development Research Institute. 2006. Thailand Development Research Institute.
  2. “Corporate Governance Disclosures in Thailand.” A study of SET50 companies. 2004. NUS.
  3. Jongsureyapart , Chatrudee. “Factors that Determine Corporate Governance in Thailand ” 2006. Victoria University, Melbourne.
  4. POLKUAMDEE, NUNTAWUN. “MARKETS & GOVERNANCE.” Business. 2008. Bangkok Post.
  5. SANTIVIMOLNAT, SANTAN. “SECC gauges damage after founder flees, Shareholder meeting to appoint new board.” Business. 2008. Bangkok Post. Web.
  6. CHUDASRI, DARANA. “SECC loses B1.36bn, 476 cars missing.” Business. 2008. Bangkok Post.
  7. Post Reporters, “Regulators file complaint against SECC.” The World’s Window to Thailand. 2008. Bangkok Post. 2009. Web.
  8. Preetam, Varna. “SECC gauges damage after founder flees, Shareholder meeting to appoint new board.” Business. 2008. Bangkok Post.
  9. “Governance.” A Generic Study. 2004. OEDC.

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