Legal Systems

• rule of law: legal system in which rules are clear, publicly disclosed, fairly enforced, and widely respected
• international business flourishes in societies where rule of law prevails
• in the US, the Securities and Exchange Act encourages confidence in business transactions by requiring public companies to disclose their financial indicators to investors frequently
• four basic legal systems:

  1. common law
  2. civil law
  3. religious law
  4. mixed
• Australia, Canada, Ireland, New Zealand, UK, and US are governed by common law
• Western Europe, Latin America, Japan, Russia, and South Korea are governed by civil law
• Middle East, North Africa, Afghanistan, Mauritania, Pakistan, and Sudan are governed by religious law
• Bangladesh, India, Indonesia, Israel, Kenya, Malaysia, and the Phillippines are governed by mixed systems
• common law is also known as case law
• common law originated in England and spread
• common law: tradition, previous cases, and legal precedents set by nation's courts through interpretation make up the basis
• in common law countries, the national legislature holds ultimate power to pass or amend laws
• common law is more flexible than other legal systems because it's more open to interpretation by courts
• civil law is also known as code law
• civil law's origins go back to Roman law and the Napoleonic Code
• civil law is based on an all inclusive system of laws that have been codified (are clearly written and accessible)
• civil law is divided into three codes:

  1. commercial
  2. civil
  3. criminal
• both common and civil law originated in Western Europe
• common law is primarily judicial in origin whereas civil law is primarily legislative in origin
• common law and civil law tend to complement each other
• most important religious legal systems are based on Hindu, Jewish, and Islamic law
• the most widespread religious law is Islamic
• countries with substantial populations of Muslims include Indonesia (205 million), Pakistan (180 million), India (175 million), and Nigeria (75 million)
• Islamic law is also known as the shariah
• adherents of Islamic law generally do not differentiate between religious and secular life
• most Muslim countries currently maintain a dual system
• in Saudi Arabia and Iran, religious courts have authority overall all aspects of jurisprudence
• sukuks: Islamic compliant bonds that offer revenue from an asset
• the government is the most important participant in transforming political and legal systems
• 5 participants in transforming political and legal systems:

  1. governments
  2. international organizations
  3. regional trade organizations
  4. special interest groups
  5. competing firms
• regional trade organizations examples: EU, NAFTA, ASEAN
• in 2018, the EU implemented Markets in Financial Instruments Directive to better regulate financial markets and improve investor protections
• special interest groups: operate to advance goals of particular community
• OPEC emerged as a powerful voice for oil producing countries including Saudi Arabia, Iran, Venezuela, Nigeria, and Indonesia
• in China, activists are pressuring the government to reduce pollution
• Asterix, a French theme park, opposed French government support for US based Disney
• US automakers in Detroit opposed BMW's construction of a factory in South Carolina