A company’s social license to operate is an intangible indicator of a company’s legitimacy. The term ‘social license to operate’ as it’s used today, originated in the mining industry and represented the ability of local communities to stop mining projects. Opposition to these projects showed that companies needed more than money and official approval to proceed with their activities. They needed to consider and understand their wider socio-political risk and impact and engage and negotiate with people who lived in the vicinity of mines and were directly impacted by its operations, to find common ground and acceptable solutions for all parties. Mining companies simply could not proceed with their activities without social acceptance and support.
Thanks to globalisation, companies now have a much wider reach than they had before which means they also have a much wider impact than before. It also means they are subject to a much broader, range of societal norms and ethical expectations than they were before.
Even very small companies can have a large number of suppliers and customers in many different countries, all of which have different laws, cultures, structures and socio-political-economic landscapes which give rise to differing values, ethics and norms.
In parallel, thanks to increased virtualisation people now have a way to more easily connect, mobilise and object if they perceive a company is operating outside the bounds of these ethical values and norms.
It goes even beyond that. In what is known as the ‘chain liability effect’, companies are now considered logical extensions of their supply chain and thus held accountable for any illegal or unethical behaviour discovered in their value chain, regardless of whether or not they were directly responsible or even aware of the issue.
Thanks to growing consumer awareness of corporate impacts following high profile corporate scandals in the early 2000s and the financial crash of 2007-2008, pleading ignorance of supply provenance and associated issues is no longer acceptable. Companies operating in today’s landscape need to be aware that breaching trust is no longer tolerated and can result in reputational damage, negative publicity and public boycotting, all of which diminish a company’s social license to operate. In fact, according to the 2021 Edelman Trust Barometer report it is worth noting that a higher number of people expect even more of business as they perceive them to be more ethical and competent than governments and so better placed to address and solve today’s global issues.
The companies who best understand and embrace these expectations are afforded a much stronger social license to operate and will consequently protect their long term viability. Understanding who your stakeholders are and how to engage with them are key to this process.
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