Thinking about institutional pressures
The idea of a contract is an institution. As we encountered in our earlier discussion of the Chinese business context, the idea of a contract is also an institution that can be subtly or markedly different between countries. Using the boxes below note down your thoughts about the regulative, normative and cultural-cognitive forces which act together to maintain a stable idea of the meaning of ‘contract’ in your society.
To some extent your answer may vary depending on the country you live or work in. However, here are some of the points I noted down as I thought about this question.
Regulative: In most countries, contracts are underpinned by laws and rules that specify the legal force that different kinds of contracts hold, the legal penalties for breeching them and the options available for seeking redress. In turn these laws are embedded in a system of law enforcement, judiciary, legal practice and systems for seeking redress against people or firms who default on contracts. These laws and legal systems can vary significantly between countries. For example in some countries there are laws which restrict the application of unreasonable contract provisions. The difficulty and cost of seeking redress may also vary significantly between different legal regimes. It is also the case that countries with apparently similar legal systems may show significant differences in the rule of law (the extent to which laws are actually effectively enforced or respected).
Normative: Contracts have a moral dimension as well as a legal dimension. Even where a contract lacks legal force or it would be too expensive to seek redress, it may be respected, since the parties share a common view of what is right. Breach of such values can bring its own penalties. A party in breech may be subject to reputational damage or other kinds of social sanction. Again though social norms can vary between countries. In some cultures breech of contract for commercial advantage is more likely to be treated as ‘just business’, in others reputational damage and damage to trust networks weigh more heavily.
Cultural-cognitive: Cultural mindsets around the role and meaning of contracts can vary significantly between countries and to some extent between industries. A particular dimension on which there is a lot of variation is the extent to which contracts tend to be relational or transactional. Transactional contracts assume low trust and specify contract terms in detail and with great precision trying to account for most contingencies. By contrast a relational approach to contracting relies on establishing broad principles and assumes mutual interest in maintaining a productive relationship. Anglo cultures, especially the USA, tend to place greater emphasis on transactional approaches whilst Asian cultures more often emphasise relational approaches. This often leads to a related tendency to treat a contract as, respectively, fixed or malleable. For example Americans working in China for the first time are often surprised that a contract seems to be treated as a starting point for negotiation rather than an end point.