by Andrew Leigh, Featured Contributor

At the 2015 Lord Mayor’s banquet the Governor of the Bank of England went on the record to warn the City that the Social licence to operate was real, and could have costly consequences.

[click to watch 30 second video]

But what exactly is this ticket to ride?

In essence, it allows a company carry on down its preferred tracks—so long as the local community or the wider society gives it a green light. Another way of viewing this is: public consent gives legitimacy to the operation.

How important then is a social licence? In some industries it can be critical for its continuation, For example, Ernst and Young ranks “maintaining a social licence to operate” as the fourth biggest business risk facing the mining and metals industry.

Permissions to operate though, may be withdrawn with serious local opposition to particular company behaviour. These might range from sit-ins, to lengthy propaganda campaigns, to more activists interventions, such as the sort favoured by Greenpeace.

Such actions can undermine the legitimacy of what the company does, damaging its reputation and profitability—sometimes permanently.

Sea world protestsA recent example of a social licence running out occurred in November 2015. The loss of SeaWorld’s social licence came almost out of nowhere. Protests about the use of captured killer whales to perform tricks to entertain paying customers had previously fallen on deaf ears.

Then came Blackfish–a devastating and widely seen documentary film. This showed what really went on at the company. It revealed the harm done to whales in captivity and the dangers to trainers. The message landed, and the number of visitors plummeted.

SeaWorld’s stock value went the same way. Lawsuits confronted its business practices, and legislation challenged what went on at the firm’s Shamu Stadium. Profits imitated the unfortunate Orcas and took a deep dive, falling 84% on the previous year.

After continuing protests, the US-based SeaWorld recently admitted defeat and announced an end to its killer whale experience.

Elsewhere, cases of the social licence springing to life have disturbed a surprised company and sometimes an entire industry. For example, the coal industry nearly everywhere is finding its social licence to operate increasingly hangs in the balance.

Rich nations aim to cut billions from coal subsidies, mainly on environmental grounds. Large investors are running scared, and planning to cut their holdings in coal companies. Support for many dirty, less efficient coal units is rapidly ending.

Similarly Norway’s sovereign fund, with concerns over severe environmental damage, is blacklisting Asian groups over palm oil plantations.

Apart from the devastation wreaked on virgin forests, the habit of burning harvested palm oil plants to make way for more, causes serious pollution for several months a year in nearby nations.

Clocking up penalty points

The financial sector too has been clocking up penalty points—creating in Mark Carney’s evocative phrase “serious ethical drift.”

Various surveys of trust in the finance industry now place it at the bottom of the league table. Since trust is everything in finance, there’s an urgent need for this industry to take the social licence seriously. Or risk more reforms making profitability almost non-existent.

Andrew Haldane2

While the social license is admittedly intangible, it’s a harsh reality that even the powerful finance industry cannot afford to ignore.

A recent public Forum run by the bank of England aimed to bring new transparency to its dealings with the financial sector.

“The purpose of all this touchy feely openness? To address the widespread worry that the City has lost its social licence–that, even seven years after the banking crisis, we still don’t trust them. And without this trust they don’t really have a social licence to operate.”
G.Fraser, Learning to trust bankers again is the worst thing we could do, Guardian, 18th November 2015

A retail pariah emerging?

Sports Direct is a UK company facing a deluge of public condemnation for its employment practices.

Campaigners dressed in Victorian clothing protest against Sports Direct's use of zero hours contracts outside the company's Annual General Meeting at their headquarters in Shirebrook in Derbyshire. PRESS ASSOCIATION Photo. Picture date: Wednesday September 9, 2015. The protests were led by Unite and called for an end of what they call Victorian working practices and demanded staff were paid a living wage of £7.85 an hour. See PA story INDUSTRY SportsDirect. Photo credit should read: Alex Britton/PA Wire

Publicly branded as “big British capitalism at its grubbiest”, this company’s social licence is now fraying at the edges.

The Trade Union Share Owners Group, the Institute of Directors, the investment Association and various campaign and shareholder advisory groups are up in arms about the conduct of the company’s senior management.

Its failure to pay a genuine living wage, and provide decent terms for staff make it a prime candidate to lose its social licence.

How? Not so much through its annoyed minority shareholders. But with the proven power of social media, how long will it be before serious customer boycotts start to surface? These would bring the company’s social licence to operate into sharper focus for its socially irresponsible leaders.

Underlining this point is the experience of Starbucks. It was at the center of a storm of protests over failing to pay its fair share of taxes. Lively protests began demanding a boycott and activists waves waving placards outside various Starbucks premises. The company finally woke up and realised its social licence to operate was under direct threat. The company offered up a large sum as a belated voluntary tax.

What the SLO means

So far there’s no single agreed definition for the social licence to operate. But it tends to include corporate social responsibility, community acceptance and reputation. Yet it seems rather broader than just community issues.

Also there are various levels at which the licence operates, ranging from mere acceptance of what a company or industry does, through to approval and beyond:

social license

Source: Thomson and Boutlier, The “pyramid” model of the SLO, 2011

One attraction of the social licence as a form of community power is a company cannot control it. But it can affect what contributes to winning or retaining one. Relevant actions include promoting transparency, accountability, clarity about benefits, remedies and adequate due diligence.

An important action is to change what you’re doing as a company to win back your social licence when it’s under threat. In 2005-06, OneSteel was taken to court by its Whyalla, South Australian neighbours and its regulatory licence was under threat. OneSteel altered its change process causing its Whyalla stakeholders to consider it environmentally and socially responsible. Watch the video

social licence

Social License Sources including:

1 Morrison, Business and society: defining the ‘social licence’, Guardian 29 September 2014

2 Treanor and L. Elliot, Bad bankers are like shoplifters—Osborne, Guardian 12.11.15

3 Useful lecture on the social licence

4 Sylvia Borren (Greenpeace Netherlands) on social licence to operate in the Arctic Ocean