How contracts vary across cultures

Understanding the role of the contract in cultures

The contract is a legal instrument aimed at organizing economic and social life. Cultural diversity is becoming a frequent characteristic of companies. Culture is a system of values, attitudes, norms, beliefs and behaviors, which are shared by a group of us (society)

A ‘good contract’ often involves building a relational network with and around the partner (China, Middle East, etc.) and completes the formal contract.

The conception of contractual relations specific to the actors varies according to the cultures. The conception of life specific to each country marked, beyond the life of companies, the global organization of society.

The psychological contract is a moral commitment between the two parties, linked to the notion of mutual obligations, not formalized, and therefore quite implicit. The terms of the contract are usually very precise and clearly defined.

“A psychological contract represents the mutual beliefs, perceptions and informal obligations between an employer and an employee. It sets the dynamics for the relationship and defines the detailed practicality of the work to be done.“
Denise Rousseau. 1

The psychological contract refers to the unwritten set of expectations of the relationship as distinct from the formal, codified contract. Taken together, the psychological contract and the employment contract define the employer-employee relationship. 2

They are short term with very specific and quantifiable terms. They are based on trust, which develops over time through repeated interactions. The cultural background of the negotiator has an impact on the conception he has of his relationship with his partner.

They create paternalistic relationships where the low power side is very dependent. Taking into account the implicit expectations of customers or suppliers, linked to their origin, certainly contributes to their satisfaction and loyalty.

The importance of understanding cultural differences in contract law

When negotiating, it’s important to consider the cultural context of the parties involved. Two key factors to consider are whether the culture is individualist or collectivist, and who holds power in the organization or society. By understanding these two axes, negotiators can better navigate cultural differences and reach mutually beneficial agreements.

“Power can have a significant impact on negotiations. Power can lead negotiators to behave more proactively throughout the negotiation process. Additionally, powerful negotiators may be more creative risk-takers. However, power can also lead individuals to overlook what the other party wants and needs and why they need it.“

“Power is critical to improving your negotiated outcomes. When preparing for a negotiation with a powerful counterpart, try to increase your own sense of power on as many levels as possible.”
Harvard Law School article. 3

Recent studies show that each culture favors its own form of psychological contract, depending on the place given to transactional and relational aspects.

In Northern americas:
Transaction-type contracts respecting a balance between the interests of both parties and based on reciprocity. They are of short duration with very specific and quantifiable terms. These contracts focus on the economic dimension and give little importance to relationships between individuals.
In Southern Europe:
Transactional type contracts with asymmetrical power with a strong individualistic dimension. The terms of the contract are usually very precise and clearly defined. Status asymmetry can lead to misuse of power, or even abuse of power, to the detriment of the weaker party.
In the Nordics:
Relational contracts with symmetrical power, diffuse obligations and long-term commitments. They focus on the preservation and improvement of collective well-being. In those contracts that include socio-emotional benefits, there is a greater likelihood that both parties will exceed basic requirements in order to maintain and improve the relationship. They rely on trust, which develops over time through repeated interactions. If this trust is broken, it is difficult to restore it.
In Asia:
Relational contracts with asymmetrical power. These contracts are based on a generalized standard of reciprocity focused on common results. They are based on socio-emotional ties and are likely to spill over into the privacy of participants. They create paternalistic relationships where the low-powered party is very dependent on the high-powered one.

In summary, how contracts vary across cultures

The values transmitted culturally sometimes differ fundamentally from one country to another, according to a more or less individualistic or collectivist vision.
Some cultures have a vertical approach that accepts more inequality and differences related to each person’s social position, while others favor a more egalitarian horizontal approach that does not take social status into account.
The cultural origin of individuals has an impact on the way they negotiate, beyond the monetary dimension embodied in the contract.
The psychological contract is defined as a moral commitment between the two parties, linked to the notion of mutual obligations, not formalized, and therefore quite implicit.
The psychological contract can take various forms: transaction-type contracts (monetary obligations) and relationship-type psychological contracts (long-term social-emotional obligations such as commitment and loyalty).

“Contracts are culture-bound. They reflect the values and norms of the societies in which they are made.”
Stewart Macaulay

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