Social license to operate

Definition

Social license to operate refers to the ongoing approval and acceptance of a company's operations by its stakeholders and the community in which it operates. This concept emphasizes that beyond legal requirements, companies must earn the trust and support of stakeholders through transparent engagement, ethical behavior, and contributing positively to society. It connects to broader principles like stakeholder theory and corporate social responsibility, highlighting the importance of balancing profit-making with societal needs.

5 Must Know Facts For Your Next Test

1. A social license to operate is often seen as a form of informal approval, relying on the perceptions and attitudes of local communities and stakeholders.
2. Companies that fail to secure a social license may face opposition, protests, or even legal actions from communities affected by their operations.
3. Achieving a social license requires continuous communication and relationship-building with stakeholders, including community members, employees, and regulators.
4. The concept of a social license is particularly important in industries with significant environmental or social impacts, such as mining, energy, and agriculture.
5. Research indicates that companies with strong social licenses to operate tend to perform better financially and experience less operational risk.

Review Questions

• How does the concept of social license to operate relate to stakeholder theory in corporate governance?
  • The concept of social license to operate is closely tied to stakeholder theory, as it emphasizes the need for companies to consider the interests and concerns of all stakeholders beyond just shareholders. In order to earn a social license, companies must engage with various groups, including local communities, customers, employees, and regulators. This engagement fosters trust and collaboration, which are essential for sustainable business practices and long-term success.
• In what ways can companies actively work to obtain and maintain their social license to operate within their communities?
  • Companies can obtain and maintain their social license to operate by engaging transparently with stakeholders, addressing their concerns, and demonstrating commitment to corporate social responsibility initiatives. This includes regular communication about business practices, conducting impact assessments, involving communities in decision-making processes, and actively contributing to local development projects. By building positive relationships with stakeholders and addressing societal needs, companies can enhance their legitimacy and acceptance in the community.
• Evaluate the implications of lacking a social license to operate for businesses in high-impact industries and how this affects their overall success.
  • Lacking a social license to operate can have severe implications for businesses in high-impact industries like mining or oil extraction. Without community support, these companies may face protests, increased scrutiny from regulators, or even project cancellations. This not only affects their operational capabilities but can also lead to financial losses and damage to reputation. Moreover, a failure to address community concerns can result in long-term setbacks as trust is difficult to rebuild once lost. Thus, securing a social license is crucial for both operational stability and overall success.

Related terms

Stakeholder Theory:

A theory suggesting that organizations should consider the interests of all stakeholders, not just shareholders, in their decision-making processes.

Corporate Social Responsibility (CSR): The practice of integrating social and environmental concerns into business operations and interactions with stakeholders.

Stakeholder Engagement: The process of involving stakeholders in dialogue and decision-making, which is essential for building trust and achieving a social license to operate.