What is a social licence to operate?

Corporate governance discussions used to refer to Corporate Social Responsibility (CSR) and Environmental, Social and Governance (ESG) principles (particularly in the manufacturing and mining sectors).

Those terms have recently been replaced by comments about an organisation’s “social licence to operate”, regardless of the sector they operate in. What does that mean?

Consider that a social licence has been referred to and called into question in a diverse range of situations: major bank lending unfairness, ball tampering in international cricket, the use of drugs in sport and executives’ domestic violence and sexual assault.

The common theme is conduct inconsistent with community values.

This social licence is wider than the need for an organisation to act lawfully, ethically and in a socially responsible manner.

It starts by meaning that an organisation must have regard to the views and interests of a broader range of stakeholders than just its shareholders.

A social licence includes non-financial factors. It incorporates the notion of trust in an organisation and compliance with community standards.

This might mean positive steps such as carrying on business sustainably or contributing to community activities and medical research.

It could also mean not acting corruptly and not condoning discrimination whether on racial, sexual or gender grounds.

But no licence is actually issued with specified conditions. And it cannot be bought.

Because the social licence is based on changing community standards, businesses need to keep in touch with the community.

Otherwise you will not know you are at risk of losing your social licence until there is a controversy that you had not anticipated.

But the starting point is working towards obtaining the trust and confidence of your community.

Consider becoming a B Corp.

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