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	Bridging the Cultural Gap In Business Agreements Between American and German or Other Central European Companies If you are doing business in Germany or Central Europe, you will eventually run across situations where the cultural differences in business are apparent. The issues addressed here are related to contracts and the different approaches in cross-cultural dealings. Here is a typical situation: a US buyer forwards its standard draft purchase agreement to the management of a German company for review. The agreement is 30 pages long with 5 pages of definitions. The German company CEO feels insulted. His company is the market leader in its product line, and the Americans send a long agreement, and it appears to him wholly lopsided. His reaction: “Do they think I am stupid? This is not an isolated case. Europeans ask: why do Americans operate like that, and Americans ask: why do Europeans react like that? To answer these questions, it is important to understand the differences in legal structure. In the US, agreements are drafted to address known issues and to consider issues that may not seem important now, but have come up in the past. US lawyers know that in addition to statutes that may or may not apply to their agreements, common law also applies. Furthermore, each state has its own laws, as does each country. The basic rule is if an issue is not covered in the agreement, and if the issue not covered gets to court, anything can happen. Thus, US lawyers need to work hard to make sure they did not miss anything. In addition, in each company there is a history of various issues that have come up in past dealings, so the lawyers write their way around those issues. The result: often long and tedious agreements. It is vastly different in Central Europe. Countries are “civil code countries”, and the major legal issues are addressed in a statutory code, which generally leaves little or sometimes even no room for negotiations in a contract setting. As a result, agreements are typically much shorter, and less complicated. For Americans reading Central European agreements that will be interpreted under the laws of civil code countries, it is therefore very important to know exactly what it means if there is a gap or unaddressed issue in the agreement, moreover, how that “contractual gap” is being dealt with in the applicable code section. Since American companies often send agreements as first drafts, using an initial draft that is more favorable to the draftor as the basis for negotiations is often typical. There is a general expectation that the other party will come back with counterproposals. And if the other party chooses not to review the draft contract, and merely signs it, that party does so at its peril. In Central Europe, parties tend to start with more balanced approaches as there is oftentimes no need to address touchy legal subjects as the relevant code section is applicable by default. Nevertheless, a US party may gain a certain tactical and psychological benefit as long as it is ready to explain that such initial draft submitted is indeed negotiable. The other party, as in the US, is now well advised to spend time and energy in order to shift such agreement to be more mutually advantageous. In addition, such a tactic achieves another advantage. The other party is required not only to undertake significant effort to get to a more balanced agreement by submitting its own counter proposal as a counter-offer, but the US party now has the opportunity to elegantly better its position by accommodating certain changes that may be relatively unimportant to the US party. This approach would give the other party the appearance that the US party has genuinely negotiated. For a lawyer on either side of the Atlantic, this can be a rather complicated situation as he or she must determine and demonstrate to the client where the real “deal killers” lie, and what type of clauses are typical or industry standard in Europe. Those doing transactions with foreign cultures should ideally bring a sensitivity for differences in approach. A healthy curiosity as well as the readiness to understand the different mentality of the other party is essential. A lot more cross-cultural deals have been broken due to cultural differences between the parties than due to language barriers (which typically can be overcome more easily). The largest potential for problems exists when both parties may not even be aware of any cultural differences and, even worse, there may an assumption of a non-existing, implicit meeting of the minds. For instance, either the German or the American party assumes that both cultures are so similar, because both parties stem from a Western cultural area. Unfortunately, this is far from the truth. Either party can, however, by merely making itself aware of some differences, achieve tremendous advantages by bridging such gap. Here are a couple of general observations: The typical Central European may generally be perceived by Americans as less spontaneous, very direct, more formal (to call the other person by the last name is practically the rule), and possibly more risk averse than the U.S. counterpart. Making final decisions typically takes longer than in the US where decision-making is more streamlined. Thus, showing patience is key to “getting the deal done”. Experience shows that international parties to a deal are mostly willing to accept and accommodate some changes to its standard terms and conditions as long as the other party provides some understandable and reasonable basis for such changes. Also, a simply structured solution is often the way to success. Something that business partners of European companies also need to be aware of is the fact that certain topics, which are clearly taboo in the United States, like sex, religion or politics are not spared, sometimes even right at the beginning of any business meeting, or during a break. This kind of attitude may be interpreted as intrusive, or even offensive, to US business parties. However, Central European managers do not mean to insult or offend the American counterpart. Obviously, not only within continental Europe, but even within Germany, there are diverse business cultures to be noted. A Northern German will negotiate totally differently as compared to a business party in the Center, East or the South of Germany. Small talk, for instance, is a lot more important in the South than in the North or East of Germany. Knowledge of this, and other subtle differences, is extremely important. By the way, the same is true for business parties within the United States: a New Yorker typically has a different style in negotiations as compared to a Texan, or a Virginian. It is definitely advantageous to gain as much information as possible about the other party’s cultural background up front, maybe through counsel who is familiar not only with German and US business law, but also with the business culture of both countries and thus, will understand the differences in the mentality of both contract parties as well as their ways of thinking and acting. As mentioned above, a sound curiosity regarding different cultures and a basic knowledge with respect to different trade usages within Europe is very important for U.S. management. By using these tips, international transactions can be more productive, maybe even fun, and possibly create a “win-win” situation for both parties. The author, Michael Kuhn (admitted to the State Bars of Virginia, New York and Germany) is an Attorney and a member of the Corporate and International Practice Section at Troutman Sanders LLP. Mr. Kuhn practices in the area of business, corporate and employment law, with a strong emphasis on international matters. He represents U. S. companies engaged in the U. S. and abroad, as well as European companies with business interests in the United States, particularly in Virginia. His email address is michael.kuhn@troutmansanders.com. His direct phone line is (804) 697-1281.