Social Licence to Operate Under the Microscope

The business case for managing a company’s social licence to operate is all about managing risk, according to a new Australian publication.

Dr Leeora Black, manager and founder of corporate social responsibility advisory, the Australian Centre for Corporate Social Responsibility has published what has been described as the first book specifically for managers on how to earn and maintain a social licence to operate.

“The Social Licence to Operate: Your Management Framework for Complex Times” deals with how companies can earn and maintain acceptance from host communities.

“The ‘social licence to operate’ began as a metaphor to bring attention to the need for companies to earn acceptance from their host communities. Today, it is a management framework for complex times,” Dr Black said.

“Managing risk and its corollary, managing reputation is the most common reason that companies begin to think about how to protect their social licence.

“To protect a social licence, a company needs to play a constructive role in sustainable community development,” she said.

“The International Guidance Standard on Social Responsibility, ISO 26000, puts the case for sustainable community development at least in part as reinforcing and protecting democratic and civic values. This suggests that a social licence may afford some protection against political instability.

“Businesses that have big impacts on communities and their quality of life increasingly recognise that there is both an ethical imperative and a sound business case for focusing on sustainable community development,” Dr Black said.

“The type of risks that a social licence can help a company manage are those risks arising from the interaction of social and political factors; that is, socio-political risk.

“Corporations face both social risk and political risks. Put them together and you can find yourself dealing with threats to your company’s very legitimacy.”

The book also looks at the impact of NGO campaigns.

“Socio-political risks occur when stakeholders, sometimes acting alone and sometimes acting in coalitions, attempt to change the amount of responsibility you take for the impact of a company’s operations,” Dr Black said.

“Campaigns run by sophisticated NGOs are good examples of how socio-political risk is introduced to companies, although socio-political risk also arises from grassroots campaigns like the ‘Lock the Gate’ in Australia, an alliance of over 160 community and environment groups that opposes ‘inappropriate mining’.

“For example, Greenpeace ran a gruesome campaign against Nestle in 2010 to stop it buying palm oil from companies that destroy orang-utan habitat, with a spoof on its ‘Have a Break, Have a Kit Kat’ advertisement.

“The spoof showed an office worker snacking on bleeding orang-utan fingers that he produced from inside a Kit Kat wrapper. As a result of this campaign, Nestle suspended contracts with its palm oil supplier Sinar Mas. Sinar Mars went on to work with the environmental group The Forest Trust on a Forest Conservation Policy, and 18 months later, Nestle resumed its purchases of palm oil.

“Greenpeace had effectively challenged Nestle’s social licence to operate, at least in regards to its iconic Kit Kat brand, although the risk to Sinar Mars was much more profound, with both sales and share price affected. The campaign worked.

“Socio-political sustainability means going beyond teaching a man to fish so he can feed himself and sell fish to the company cafeteria. It means helping his fishermen’s organisation and the municipal government rid their social network structure of its dysfunctional configurations so they can collaborate widely to set up a regional fish market and establish links with international fish buyers.

“That sounds like sustainable community development and is how a social licence looks when it is well established,” Dr Black said.

“I’m often asked why the social licence concept is emerging now and why activists seem to be so much more demanding than they used to be. The answer lies in changing social values and the simultaneous growth of the global civic sector over the past 20 years.

“But social movements act like a weathervane for where sentiment is trending on major social and environmental issues. Environmental groups, community health groups, neighbourhood groups, unions and rights advocacy groups can all become active on issues that affect a company’s social licence.

“The civic sector is also bigger than it used to be. Its growth far outpaced the growth of the private sector.

“It’s now easier than ever for any company to come under scrutiny and potential threats to its social licence. Evaluation and management of socio-political risk should be on the agenda of every company, particularly those with far-reaching social, environmental and economic impacts.”

The book is available as both an e-book and in print from the UK publisher Do Sustainability.