Due to the immigrant nature of the U.S. and our international reach, our businesses faced and dealt with a huge number of various, mutually incompatible, "handshake and honor" systems. The outcome of that was a two-part set of mature assumptions:
1) Every party in a business relationship is seeking to maximize their outcome.
2) The government acts as a fair arbiter in disputes and has enforcement powers.
Almost all American business theory is formed under this two-part umbrella. Importantly, Business relationships are built upon founding documents (contracts, agreements, etc.) that all parties have agreed to and those documents are used as the basis for arbitration by the government.
This is contrary to many places where personal connections and gentlemen's agreements (and some perception of honor) act as a kind of enforcing agent in business. "Everybody is out to screw me, except for my very best business friends who I've gone drinking and golfing with many times" or "If he screws me in this deal I'll make it known and it'll hurt his reputation."
These kinds of ideas only work if all parties care about them. But a single actor operating outside of these handshake and honor systems can completely upset the environment. What if somebody doesn't care about maintaining face or honor, or has a different perception of how honor works? Now what keeps them honest in an agreement? The answer, as we found out through lots of trial and error is "nothing".
Americans often find stories of other countries' business relationships gone bad (where one party simply decides not to honor their part of an agreement) amusing and almost impossibly naive sounding because we already know this truth.
On the flip side, Americans overseas continue to assume #2 from above and often find themselves screwed over by savvy business people who know the ins and outs of the local handshake-and-honor system. For example, areas with weak contract enforcement, where the ceremony of contracts are signed, but the non-U.S. party simply has no intention of honoring it (and is aware of the local weak arbitrage and enforcement options) are fairly common.
That's not to say that handshake-and-honor agreements don't happen in the U.S. But usually for very small things where it's not worth the trouble of forming an agreement that might later be enforced by the government. For example, lots of businesses give small amounts of credit to long-time customers based on a verbal agreement that the tab will be paid soon.
At any rate, our solution is the two-part system above that has provided the safety and security to form a highly permissive business environment and enables things like Silicon Valley, New York City finance, Apple's supply chain might, and so on.
What makes this unusual in the American system is that this was a handshake-and-honor agreement, which turned into a very large amount of money. But the owing party treated it like a normal enforceable agreement anyway and completed his part of the deal, even though there's not really any founding documents that would have formed he core of an enforcement action by the government.
1) Every party in a business relationship is seeking to maximize their outcome.
2) The government acts as a fair arbiter in disputes and has enforcement powers.
Almost all American business theory is formed under this two-part umbrella. Importantly, Business relationships are built upon founding documents (contracts, agreements, etc.) that all parties have agreed to and those documents are used as the basis for arbitration by the government.
This is contrary to many places where personal connections and gentlemen's agreements (and some perception of honor) act as a kind of enforcing agent in business. "Everybody is out to screw me, except for my very best business friends who I've gone drinking and golfing with many times" or "If he screws me in this deal I'll make it known and it'll hurt his reputation."
These kinds of ideas only work if all parties care about them. But a single actor operating outside of these handshake and honor systems can completely upset the environment. What if somebody doesn't care about maintaining face or honor, or has a different perception of how honor works? Now what keeps them honest in an agreement? The answer, as we found out through lots of trial and error is "nothing".
Americans often find stories of other countries' business relationships gone bad (where one party simply decides not to honor their part of an agreement) amusing and almost impossibly naive sounding because we already know this truth.
On the flip side, Americans overseas continue to assume #2 from above and often find themselves screwed over by savvy business people who know the ins and outs of the local handshake-and-honor system. For example, areas with weak contract enforcement, where the ceremony of contracts are signed, but the non-U.S. party simply has no intention of honoring it (and is aware of the local weak arbitrage and enforcement options) are fairly common.
That's not to say that handshake-and-honor agreements don't happen in the U.S. But usually for very small things where it's not worth the trouble of forming an agreement that might later be enforced by the government. For example, lots of businesses give small amounts of credit to long-time customers based on a verbal agreement that the tab will be paid soon.
At any rate, our solution is the two-part system above that has provided the safety and security to form a highly permissive business environment and enables things like Silicon Valley, New York City finance, Apple's supply chain might, and so on.
What makes this unusual in the American system is that this was a handshake-and-honor agreement, which turned into a very large amount of money. But the owing party treated it like a normal enforceable agreement anyway and completed his part of the deal, even though there's not really any founding documents that would have formed he core of an enforcement action by the government.