Defining the elusive and essential social licence to operate

Leeora BlackSara BiceBy Leeora Black and Sara Bice

The term ‘social licence’ has become an increasingly popular expression to describe the business case for company engagement with stakeholders and issues.

The term was coined in the mining industry about 15 years ago but today is so mainstream we see it routinely used in the news media and politics. For example, the coal seam gas industry and the live cattle export industry have both had their social licences under the spotlight in recent months.

At ACCSR we have been routinely measuring the social licence to operate (SLO) in all our stakeholder research projects for the last two years. The SLO measures we use evolved from our work looking at social capital in stakeholder networks. We’ve done this work together with our senior international associate, Dr Robert Boutilier.

We get a lot of questions about the social licence. Here are a few of the more common questions and some brief answers.

What is the definition of the ‘social licence to operate’?

At ACCSR we use the definition developed by Robert Boutilier and Ian Thomson, a Canadian consultant. The social licence is the level of acceptance or approval continually granted to an organisation’s operations or project by local community and other stakeholders. It has four levels from lowest to highest: withdrawal, acceptance, approval and psychological identification. Most companies or projects are in the acceptance or approval range most of the time. It can vary across time or between stakeholder groups in response to actions by the company and/or its stakeholders.

What’s the difference between the social licence and reputation?

The social licence is a perception of legitimacy – does the company go about its business in a proper way? Reputation is the overall favourability of the image of a company or project. Think of reputation as more ‘affective’; it’s more of an emotional like and dislike.   But the social licence and reputation operate through the same channels; they spread in the same ways, through interactions with and between stakeholders.

What’s the relationship between the social licence and stakeholder demands and expectations?

Stakeholder expectations—the respectful, minimum standards of behaviour groups or individuals may reasonably expect from companies—are strongly linked to the social licence. For example, the social licence to operate is likely to fall when issues remain unresolved in stakeholder-organisation relationships.  And issues arise in stakeholder-organisation relationships when there’s a gap between what stakeholders expect and what they’re getting, so expectations are definitely related.  

Demands might be a bit different, though.  At one of our recent workshops, a participant suggested that companies can often destroy their own social licence to operate by giving in to stakeholder demands willy nilly. This is an important idea because of the phenomenon of ‘ratcheting expectations’ in CSR.  One group thinks, “well, if we push hard enough, we’ll get what we want because that’s what happened with the other group.” 

To stave off ratcheting expectations, it’s far better for companies to be very explicit and open about their processes, have clear decision criteria and to communicate those decision criteria clearly. This allows companies to meet expectations without becoming vulnerable to unreasonable demands.  We don’t think giving in to demands increases your social licence to operate, but meeting expectations does. 

 What’s the difference between the social licence and social capital?

Social capital is about the goodwill that makes collaboration possible between people or organisations.  It’s an attribute of a relationship between two stakeholders or stakeholder organisations.

We talk about social capital as being the product of the “three Ts”: talking, trusting and thinking.  Talking is the extent to which there is effective communications between and amongst stakeholders. Trusting the extent to which they can rely on one another’s actions. Thinking is the extent to which they have a shared language, a shared view of the future, the ability to create shared goals and so forth. When relationships between stakeholders and a company are high in the “three Ts”, they have strong relationships and are able to work effectively together on their shared goals (for example, to achieve regional prosperity, environmental rehabilitation and so on).

When a network of stakeholders enjoys high social capital among themselves, they are most able to issue an enduring social licence to a company or project. So we would say that social capital is a component of the social licence.

Does the idea of the social licence embody a fundamental shift in the power relationship between companies and communities?

The social licence to operate reminds communities that they do have collective power. When companies use the term, ‘social licence’, they are acknowledging the power communities have. When communities talk about a company’s social licence to operate, it makes their power more explicit. What’s interesting is that, although the social licence has only recently materialised in the mainstream amongst major companies, it’s an idea which has been central to the success of democratic societies since at least the 18th century, so perhaps it’s uptake is not so much about a power shift as an active recognition of what we’ve known for a very long time.   

What does it look like when a company has a social licence?

First of all, there’s low and infrequent conflict between stakeholders and the company. The company or the project is seen as an inextricable and valued component of the social and economic fabric of the community. Its employees and managers will be socially well accepted in the community because they’re part of the community. For example, their out of hours pursuits give them extensive community contact which helps them to understand the values of their community.  These companies will easily be able to attract good talent. They will have few or no problems in obtaining the necessary regulatory licences that they need. Basically, they will be treated as a valued member of the community. 

Some questions for you:

What does a social licence mean for your organisation?

Will a social licence become the next major measure of a company’s effectiveness in social responsibility?


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One Comment

  • Thanks to Leeora and Sara for this very timely article. It’s particularly interesting to see you relating social licence to both reputation and social capital, and asking what it all means for power relations. I might add a couple of comments.

    Firstly, it’s also worth exploring the difference between social licence and longer-established concepts such as corporate social responsibility and sustainable development. Although these terms have differences in focus, they are all essentially concerned with much the same thing – the interdependent relationships between business, society, and the environment. Where social licence differs, I think, is that the word ‘licence’ conveys the impression that companies need to have some kind of ‘permission’ from local communities and/or society in order to operate. As Leeora and Sara suggest, this appears to endow stakeholders with considerable power, perhaps to a greater extent than do previous concepts such as CSR.

    Secondly, we need to compare social licence with regulatory licences and permits. Because social licence is a metaphor, not a ‘real’ licence, it is hard to say whether it has been granted or not. It is easy for stakeholders to claim that a company does not have a social licence, and equally easy for that company to claim that it does have a social licence, and hence quite difficult for an impartial observer to make a balanced judgement. For example, some have claimed that the coal-seam gas industry in Australia does not currently have a social licence, while the industry itself strives to counter that argument. There is no ‘truth’ here, only opinion, based on each party’s interests and assumptions. Further, even if the majority of local community members, or society broadly, withdraws acceptance of a company’s presence, the company is not obliged to cease operations, as it can point to its regulatory licence to operate. The onus is on managers, therefore, to think about social licence as if it were a ‘real’ licence – in other words, to treat stakeholder expectations with the same respect as regulatory requirements.

    Thirdly, the ubiquity of terms such as social licence and CSR reflects a fundamental shift – conversations that in previous eras were considered outside the realm of business are now commonplace. Managers can now talk a new language of stakeholders, communities, social impact, and sustainability. Yet there is a difference between talking this language and genuinely engaging in the real issues that concern stakeholders. It is often tempting to treat social licence as simply a risk management issue, without thinking about ethical or moral questions.

    The challenge, I think, is to move beyond the comfortable but technocratic realm of systems, tools, indicators, and measures, towards a deeper reflection on the assumptions we make every day, and on whether we need to rethink them.

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