Government policies and legal systems of different countries also often reflect the cultural values of the country. These legal and policy frameworks influence business practices in two ways: (1) they determine the broad framework for doing business in a country, and (2) they influence and circumscribe management practices within the company.
For instance, the Co-Determination Act in Germany reflects the formalized but egalitarian values of the Germany society. Just as German culture is based on a clear role division, in which the rights and obligations of every person is accepted, this Act provides for sharing of power between the management and the unions. Thus, for example, in Germany, unions have a greater say on issues such as piece work rates, job design, compensation, etc., as compared to many other countries. In fact, unions even have veto power over management decisions related to training selection criteria and recruitment, reassignment etc.
Similarly, since Islamic values do not permit interest-based transactions, in many Muslim countries in the Middle-East, insurance policies are not taken, either for people or for goods (since money is earned on premiums through interest bearing investments). In Malaysia, however, in 1984, the government implemented an insurance system though the Takaful Act, (meaning “guaranteeing each other”) which is consistent with Islamic values, and beneficial to both the insurer and the insured.
It is also interesting to note often, cultural values influence the interpretation and implementation of laws. For instances, in Japan, while the various legal codes are similar to those in Germany and the US, they are practiced very differently. Though a Contract Law exists, detailed legal contracts are rarely made among Japanese companies. Being a collective culture, where working together, interpersonal trust and “face” matters a lot, agreements even involving major corporate investments are made in mutual good faith. If a written contract is made, it is normally short and often with very flexible wordings (in contrast to the long and extremely detailed German contracts) Moreover, even when a contract is broken, it is normal for the two parties to settle the dispute through negotiation and conciliation, rather than starting legal proceedings which are considered as shameful for both since it would mean that they were unable to resolve their conflicts amicably.
Another unique public policy is life-time employment in Japan, which is rooted in a literal interpretation of Article 27 of Japanese Constitution – “All people shall have the right and obligation to work”. It is interesting to note that Japan is not the only country to have “right to work” as a part of its Constitution. However, it is the only country where it has been implemented earnestly, because it is supported by its cultural value ‘shakaisei’ (social consciousness) and ‘tate shakai’ (social hierarchy and paternalism). In contrast, while the US Constitution also guarantees the right to work, the cultural value of self reliance and ‘each for him’ does not support it.
Cultural values also often determine the nature of laws, which have direct implication for management practices within the company. For instance, in the US, during a recruitment interview, it is illegal to ask any question about candidate’s martial status, family background, spouse’s occupation, race, race or religion etc. This may look odd to people from other cultures (e.g. India or Japan) where a person’s background is seen as indicative of his or her potential and competence. However, such legal requirements are quite congruent to the US cultural values, which emphasize individualism, privacy and equal opportunity.