‘Digital technology’ or ‘Industry 4.0 era’ are terms that have been frequently mentioned in recent years. While the world has strongly deployed digital age, in Vietnam many enterprises are still struggling to sufficiently transform with the desire to remove traditional management methods and catch up with the world trend, that is, the Industry 4.0 era. Within the scope of this article, the ethical issues associated with the corporate governance model in the process of operating an enterprise in the Industry 4.0 era and the challenges will be discussed.
The transformation is evident in the supporting industries and services. Enterprises in these fields are gradually transforming their business models and management based on technology to connect enterprises with customers and between business departments. The need to keep up with the increasing demands of customers by transforming has led to a shift in managing each enterprise, which has posed a great challenge for business managers on the journey to find a sufficient governance model that aligns with core values for their enterprise.
Within the scope of this article, the ethical issues associated with the corporate governance model in the process of operating an enterprise in the Industry 4.0 era and the challenges will be discussed.
1. Introduction
Throughout the world, the digitization of business activities has been thoroughly applied by enterprises, but in Vietnam, a developing country, the terms ‘digital technology’ and ‘Industry 4.0’ have been used, and ‘data digitization’ has only appeared in recent years.
While enterprises understand the benefits that digital technology brings, there have not been drastic changes, and it is only now, under the strong impact of the COVID-19 Pandemic with social distancing policies from the Government, etc., that enterprises have been forced to seriously consider the application of digital technology in business activities (previously, digital technology was applied only to support the needs of users, such as for saving time, reducing travel since enterprises can manage work remotely, quick communication, etc.) and to change the way that they operate and adapt if they are to continue to survive.
Digital technology is understood as the process of transforming from a traditional management model to a digital business model by applying new technologies to business activities from the approach to customers, partners, and suppliers to internal management. The recent developments in digital technology (such as artificial intelligence, cloud computing, the internet of things, etc.) have been widely used by Vietnam enterprises in business, manufacturing, and management.
2. Corporate governance in the digital age
Digital technology has been a topic of much discussion at the meetings of Vietnamese authorities in recent years because associated with digital transformation, the legal foundation also needs to be adjusted for compatibility.
Currently, the provisions of Vietnamese law related to transactions and methods of interaction through electronic means have been regulated, but these regulations are scattered through many legal documents and correspond to many relationships, and these regulations currently govern only at the level of electronic transactions.
In recent years, digital technology has been of some interest to enterprises, but only at the level of exploration and implementation for gradual adaptation, and the transformation has mostly been in large enterprises. Currently, enterprises choose step-by-step implementation at each stage in production, progressing to each part of the business. Typically, digital transformation for the production line is especially focused. Through this transformation, governance activities are made simpler, when technology has replaced the large number of workers in charge.
For other departments, from administration to business, transforming to apply digital technology is also of interest to the benefits brought by digital technology, especially data creation, processing, and storage. Technology helps enterprises to digitize data and to store it on a common platform where they can extract such information whenever needed as well as without having to use a lot of space and spend on personnel costs for document storage.
Currently in Vietnam, enterprises, when applying digital technology to internal management, often expect that it will help increase the quality and productivity of employees and save costs, including wages; provide easy access without limitation whereby all data is converted to a digital format, which enterprises can access anywhere and at any time; and improve the information security of the enterprise, whereby the access to data is decentralized for each level of management and each department. Based on these factors, enterprises operating in the field of technology have exploited and built applications to match customer needs.
When integrating into the world economy through commitments to opening up and tax incentives, Vietnam is attracting the attention of many investors as an ideal investment destination. To manage investment activities in Vietnam effectively, especially when the situation with the COVID-19 pandemic is still complicated and policies to restrict entry have been introduced by the Government, investors have chosen digital technology as a method of corporate governance in Vietnam. Accordingly, the processing and storage of data on a digital technology platform makes it easy for investors to control the situation of business activities in Vietnam and ensure the safety of documents, avoiding loss and theft.
Most enterprises participating in the transformation process are aiming to convert documents in the form of paper documents into an encrypted format in files stored on a common platform, thus gradually shifting to the digitization of documents instead of the traditional form, paper documents. What Vietnamese enterprises receive when making the transition to a digital technology model is an increase in labor productivity, a reduction in human resources involved in production, and a reduction in costs, including personnel and management costs.
To adapt to the trend, legal regulations have recognized the validity of the contents and documents created and stored based on digital technology. The Law on E-transactions 2005 provides:
- Article 10. Formats of data messages: “A data message may be shown in the form of electronic data interchange, electronic documents, e-mails, telegrams, telegraphs, facsimiles, and other similar forms”.
- Article 11. Legal validity of data messages: “Information in data messages cannot have its legal validity disclaimed for the sole reason that it is expressed in the form of data messages“.
Aside from the above general rules, separate regulations in other fields have also recognized the value of electronic data, specifically the Law on Accounting 2015 stipulates:
- Article 17. Electronic records: “1. Electronic records are considered accounting records if they have the contents specified in Article 16 of this Article and are displayed in the form of electronic data, encrypted and not changed during transmission through the computer network or telecommunications network or by a storage device such as magnetic tape, magnetic disc, or payment cards“.
And most recently, the new Labor Code that takes effect in 2021 has allowed enterprises to establish labor relations and conduct management via electronic means. With changes in legal policies and incentives for enterprises utilizing the ‘digital technology’ that Vietnam is currently applying, it will be a lever for digital technology in Vietnam to develop and enterprises will be more confident in applying the governance model based on digital technology.
3. Business ethics in the context of digital age
Currently, certain industries in Vietnam have regulations on codes of conduct and ethics, but these are just a few regulations that create ethical standards for enterprises in business activities in general. Corporate governance still has not been developed into a specific standard system to guide business behaviors for enterprises. With the economy on the rise and the interweaving of different cultures, some enterprises put ethics in business and governance as a top priority since it is an investment for the future and the sustainable development of the business. In addition to the goal of profit, humanity in business methods, product, and service quality performed according to the enterprise’s commitment is considered as one of the forms of showing ethics in business when aiming to comply with what the enterprise has committed to.
While enterprises carry out profitable business activities, these are not separate from social responsibility, which is understood as not merely charitable activities, but further benefits for consumers and the community. This can be simply understood based on the following:
The actions and decisions of enterprises are creating disadvantages in terms of health and the material and living environment of the community. Some enterprises in Vietnam have violated this in recent years when trying to achieve their goals, for instance, to achieve their goal of reducing waste treatment costs, they have discharged sources of waste into the natural environment. The consequences for enterprises have been verified as the user community has boycotted products in the Vietnamese market, which is the biggest damage that enterprises might suffer due to the violation of business ethics.
Another aspect is whether an enterprise’s actions in management consider the interests of its employees or not. For instance, when converting the traditional management model to a digital technology model, personnel is reduced to make room for technology machines. The question is, when implementing this transformation, whether the enterprise has complied with the provisions required by the labor law when reducing personnel or not.
In terms of Vietnamese culture, Vietnam is a country with an Eastern culture with the spirit of helping and sharing difficulties, as well as a large labor force, so the reality will be seen in the process of transformation to digital technology. The reduction of unnecessary personnel is inevitable and enterprises may have fully fulfilled the requirements prescribed by law, but to harmonize both the situation and reasons, in Vietnam enterprises often choose to negotiate with employees before taking action, even those that are allowed by law. This will reduce disputes and strikes in Vietnam and improve an enterprise’s reputation.
Complying with legal regulations and fulfilling commitments to partners and customers are also matters of business ethics.
Business ethics in each country will have different standards depending on the culture and development level, but in general, business ethics will be evaluated based on profit, which must be associated with responsibility to the social community.
4. What are the challenges for enterprises in Corporate governance and Building ethics?
For corporate governance activities, the occurrence of the COVID-19 Pandemic can be considered a catalyst to help enterprises in Vietnam recognize the need to transform. However, moving from awareness to action will not be easy for every enterprise when there are still numerous barriers that prevent many enterprises from implementing and completing the transformation process. This comes from:
- The specific transformation of applying digital technology to corporate governance causes disturbances within each enterprise. When digital transformation means that a part of the personnel will be cut, this will cause panic for all employees of the enterprise.
- Financial resources and costs for the transformation will be more or less dependent on each stage of development, the available technology level, as well as actual demand. For many enterprises, this is still a burden.
- There are very few human resources for management in enterprises operating on traditional models today, especially those who have access to and are trained in digital technology, so when implementing digital technology, this group of personnel must understand the basic principles of the operating mechanism of each element of software, the value it brings, and the needs of the business.
The understanding of digital technology and corporate governance by enterprises is still incomplete, which is reflected in the fact that many enterprises do not clearly understand technology trends related to their industries and the business that enterprises are operating, leading to the reality that they are not ready to change, access technology, infrastructure systems, change processes or change their way of management and administration to meet technology trends.
Corporate governance in the digital age requires those in management positions to be individuals who are knowledgeable about management activities that will be implemented on a digital technology platform, but in reality, their relatable knowledge is not high. Enterprises need to make requirements for management levels to improve management capacity in areas including strategic management, finance, human resources, production, and marketing resources (including digital resources). There is no uniformity in the application of technology to all parts of the business, whereby most enterprises can only apply a part of technology to management, using individual software such as accounting, CRM, warehouse, sales, etc., with a lack of connection with each other.
Data governance after transformation is also not currently focused on. With the application of digital technology, data is generated in many fields from education, sports, and entertainment to healthcare, finance, and from basic to strategically important data in each enterprise; however, some enterprises have not yet come up with solutions to preserve, avoid leakage, and loss of data, which includes both technology and human aspects.
In addition, the data storage platform in Vietnam is not trusted much by enterprises due to their concern about data safety, and they prefer looking for partners in a foreign country where there is a stable and secure digital technology environment for storage purposes. However, currently, Vietnamese law has introduced several new regulations on cases that require data to be stored in Vietnam. This also causes fear for enterprises when transforming their governance model to digital technology.
In terms of corporate ethics, as discussed above, enterprises that properly implement business ethics are an investment for the future; however, in the current context of Vietnam, to build and maintain business ethics there will be many challenges and difficulties that enterprises must face, some of which are mentioned below:
- The legal system stipulating the standards for the ethics of enterprises has not been built into a common system of standards, which leads many enterprises to violate legal regulations and commitments to customers and employees to achieve business profits.
- To ensure business benefits and reduce costs when there is a need to convert the traditional operating model to a digital technology governance model, some enterprises have made mass reductions in personnel without relying on agreements between enterprises and employees as well as non-compliance with labour laws.
Currently, labor law requires enterprises to allocate a new job arrangement plan for employees. In case it is not possible to arrange new jobs, enterprises are allowed to cut back after notifying the competent authority in advance for a certain period.
However, as mentioned above, some enterprises do not comply with this regulation. The reduction of personnel often occurs at manufacturing enterprises when automatic machine lines replace human labor and, in some cases, these cuts lead to strikes by employees which causes the opposite effect on the enterprise itself in terms of material damage and reputation. - The development of digital technology has led to some enterprises disregarding legal regulations to search, copy, or steal the data of other enterprises to create their advantages in the market.
5. Solutions for enterprises
Digital technology is a major reform for every enterprise in governance, so to avoid financial waste and prolong the transformation time, enterprises need to first survey their own needs to choose management software suitable for production and business activities. Accordingly, enterprises can consider using overall management software to ensure consistency for the entire enterprise.
Enterprises can implement training for personnel from the management team to the operation team because not every enterprise has technology-savvy personnel, so organizing training for employees plays an important role. Identification of weaknesses to overcome and promote each person’s strengths as well as at the same time improving the ability to think critically, stimulates effective teamwork, and equips personnel with the necessary skills required by the 4.0 era.
Enterprises can equip themselves with software solutions. For large enterprises that need to process huge amounts of data, applying traditional methods will cause unnecessary difficulties and errors. Software solutions make working, production, sales, recruitment, etc., processes simpler and more accurate. The software also helps the production process to be automated, saving manpower, labor, and time.
Enhancing the role of corporate culture and applying digital technology to help enterprises replace the traditional operating model with a digital-based operating model will have a significant impact on the culture of development and cooperation of Vietnamese enterprises. To catch up with the world in the digital economy, enterprises need to say ‘no’ to stagnation and slowness and exhibit constant innovation and flexibility in approaching customers.
The organization of training and learning, in the digital age, is important for enterprises. Besides always updating new technology information, they need to organise training sessions, technology tutorials, and software solutions for their personnel.
With ethics in business and management, enterprises, when formulating business strategies, need to consider the common interests of the community, partners, suppliers, customers, employees, product quality, services, and the ecological environment. Ensuring business standards with partners also comply with the law. Compliance with these principles also helps enterprises to not violate business ethics and creates a reputation for the business for users as well as partners.
In addition, carrying out community-oriented activities (such as protecting the environment, creating jobs for ethnic minorities, and, together with the Government, contributing to poverty reduction and social equality programs) is also a way for enterprises to promote and strengthen the brand of their business and to show the business ethics of its businesspeople towards the community by Vietnamese traditions.
On the part of the Vietnamese Government, for the legal foundation to be suitable for the transformation of enterprises, the Law on Cyberinformation Security and the Law on Cybersecurity and guiding documents have been promulgated to ensure timely data security for enterprises when performing the digital transformation. At the same time, in some relevant meetings, the Government has given general orientation and solutions so that competent agencies can build legal regulations on that basis to suit each business activity related to corporate governance and building ethics in digital technology, specifically:
- to prioritize building and perfecting management mechanisms, policies, and legal regulations to keep pace with the digital economy and smart industry;
- to build an information technology infrastructure synchronously;
- to quickly develop human resources of enterprises and state agencies to meet the requirements of the digital economy; and
- as enterprises are the center and motivation of new technology development and the application of science and technology, developing digital enterprises has been identified as a central and long-term task to develop the digital economy in Vietnam.
The 4.0 era, with the breakthrough of technology, the internet, and artificial intelligence, will change production and strongly impact the management activities of enterprises. However, the development speed of digital technology is quite fast, so enterprises are forced to continually update to ensure that the technology applied is also compatible with the version that the world is using. Aside from the opportunity, digital technology will also create many challenges affecting the operation of the business community in general and corporate governance specifically.
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