The Social License

How to Keep Your Organization Legitimate

John Morrison

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137370723
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

Adistinctive and direct guide to legitimacy in business, focusing on the new benchmark of a'Social License to Operate'. Featuring case studies ofwhat is and isn't working, this book explains how business owners and CSR professionals can integrate legitimacy into the heart of their company strategy, beyond CSR and good PR.

Part 1

Introduction

chapter 1

Macondo

“Their Power in the utmost Bounds of it, is limited to the Publick good of Society”¹

John Locke (1689)

20 April 2010

At 8.50 pm the rig personnel felt “a kick.” They had been monitoring the cement pumped down to the bottom of the production casing of Block 252 of the Mississippi Canyon in the Gulf of Mexico, one of the deepest deepwater oil wells in the world. The rig was 48 miles off shore, in 4,992 feet of water and drilling to a depth of 20,600 feet.² The jolt they felt was an imbalance between the pressure of the drilling fluid and the hydrocarbons in the reservoir at the bottom of the well deep below the sea. Within ten minutes these hydrocarbons had flowed up the riser onto the rig floor and caused the rig to explode—a chain of events that would kill 11 platform workers and cause the largest offshore oil spill in US history. The platform was the Deepwater Horizon, contracted by BP to exploit the “Macondo Prospect” (named after Gabriel García Márquez’s fictional Colombian village). The rest is a matter of recent history.

The next few months would be bad for the company. Few US stakeholders would be prepared to defend the company’s safety record (largely due to the Texas City and Prudhoe Bay disasters which had preceded that in the Gulf of Mexico³) and even worse, BP’s four main competitors were willing to go to Congress to testify against the company for not meeting industry standards.⁴ BP faced between $20 and $37 billion in total liabilities—a large sum even for an oil company.⁵ The story is now well known. The then CEO, Tony Hayward, stumbled when trying to explain the accident and BP’s response to the wider world.⁶ By this time, it had become a media feeding frenzy—his tone was perceived to be aloof and there was virtually no one anywhere in the world who was willing to stand in front of a camera and defend his company, other than those his company paid to do so (i.e. his employees and lawyers). Within weeks, a new CEO was in place.

What lessons can be drawn from this example? First, that the risk to human life was not perceived to have been managed well enough by a company that had gone through a cycle of aggressive acquisitions and then cost-cutting. This is not to suggest that BP intended any adverse outcome to occur. Few companies are cynical enough to have such a goal. But the outcome was not anticipated, or if it was, the probability, the company thought, was negligible. Second, so whilst BP’s problems all had a technical element at source, they were undoubtedly compounded and magnified by something greater—the social, political, and legal context of the USA. In other words, whilst the problem was technical, the management implications of such a technical risk had a direct bearing on the expectations that society had and still has on the company.

It is important to remember that in 1984 Union Carbide, whose health and safety breaches in Bhopal, India, caused the death of over 3,000 people, arguably faced much less of a reputational issue in the US market than did BP. The Bhopal disaster was a generation earlier and on a different continent but whilst it has left a strong legacy of societal expectation in India, the actions of a US company abroad have left fewer expectations in the home country. So public and political sentiment can be fickle and highly domestic in focus. Legal regimes differ considerably around the world, and therefore so does non-technical risk. However, a human life is a human life and recent efforts between governments, within the United Nations and elsewhere, make the lessons of the Gulf of Mexico increasingly relevant to anyone anywhere in the world.⁷ Both these cases, BP and Union Carbide, illustrate how legitimacy in the eyes of society can be a material issue for a business. It can cost the company not just in terms of immediate financial damages but also in terms of its future operations. For example, a recent study has estimated that conflicts with local communities can cost mining companies up to US $20 million per week when large projects are delayed. Legitimacy and community relations can have real commercial value.⁸

And so to the focus of this book: the “social license.” In recent years the concept of the “social license to operate” has arisen within the mining sector in particular. The concept has been defined in various ways, as will be discussed in the next chapter, but has broadly meant “the extent to which a corporation is constrained to meet societal expectations and avoid activities that societies (or influential elements within them) deem unacceptable.”⁹ This book endeavors to take the social license concept much wider and deeper, showing its relevance not just to all business sectors but also to the activities of governments, civil society organizations, trade unions, faith groups, communities, and other actors. My own experience of working in and with all of these types of organizations suggests to me that a good deal of their legitimacy, in the eyes of society at least, arises from their social license. As I will discuss, the concept is perhaps much less woolly and intangible than some might appreciate if it is pinned to older philosophical ideas—in particular the idea of the social contract between individuals in society.

When taking over from John Browne as CEO of BP in 2007, Tony Hayward made the comment that BP had “too many people trying to save the world.”¹⁰ My contention is the opposite. In fact BP would have benefitted from having more people who really understood social risk and social impact in a global sense, and the company would come to suffer as a consequence. Ironically, a few years earlier, BP had had more of these socially minded people, but many left as part of the “de-Browneification” of the company when Sir John Browne stood down as CEO (for unrelated reasons), according to some observers.¹¹ As I will argue, being part of global solutions and not global problems is much more than an issue of “public relations,” “corporate social responsibility,” or “spin,” but about legitimacy that can be earned through knowledge and actions, not clever advertising or aggressive lawyers.

“World savers” and “tree huggers” are two of the many derogatory terms that some who think they have “hard skills” (e.g. geologists, engineers, bankers, lawyers) throw at those with “softer skills” (e.g. anthropologists, sociologists, political scientists, NGO types). However, there is much in the world today to suggest that human skills (a better term than “soft skills”), or more particularly knowledge and ability about how to generate and maintain legitimacy in eyes of fellow humans, will be skills that both businesses and governments will crave and value in years to come at least as much as they value clever geologists. There were ample opportunities to demonstrate the lack of such skills during the summer of 2010.

There are a number of associated questions that I will return to:

How much knowledge should an organization have of its social risks and impacts?

In particular, what priority should be given to risks that might have a significant impact on human life or wellbeing?

How does an organization know that its measures to mitigate such risks are adequate in the eyes of others?

How transparent should it be about its knowledge of these risks and associated mitigation measures? How should such disclosures be made?

How should others outside the organization be involved in this whole process of identifying and managing risk on an ongoing basis? What responsibility are these stakeholders given and what legitimacy might be conferred on the organization as a result?

And so a final word on BP. It is a company with many technically competent people who often get it right. But it has had its share of problems. It pays its taxes, it is accountable to its shareholders and to the home and host governments under which it operates. It is no longer saddled with issues of colonial legacy in different parts of the world. There have been periods in its relatively recent history when BP has shown progressive good sense—often at the local level. The company carried out what may have been the world’s first human rights impact assessment was carried out in Tangguh in West Papua, Indonesia, during the late 1990s as well as the legal assurances made to Amnesty International in relation to the Baku–Tbilisi–Ceyhan pipeline (between the Caspian Sea and the Mediterranean).¹² Similarly, BP has been one of the most active companies in leading the development of the Voluntary Principles on Security and Human Rights in countries such as Colombia.¹³

The whole industry, and not just BP, has some fundamental choices to make. They have traditionally seen such issues as Deepwater Horizon in primarily health and safety terms—which of course it is at its core. Health and safety puts the protection of an individual above all other considerations (or at least it should) and is based on a methodology of prevention and due diligence to minimize risk and take associated mitigations. But of course major social impacts can be more than health and safety—for local communities they can be as diverse as impacts on water, land, livelihoods, freedom of expression, or personal security. Many businesses currently see these wider relationships with society largely as an issue of public relations (PR) or public affairs. PR traditionally puts the interests of the organization above all other considerations: they are the “client” are they not? Health and safety is “human centric,” whilst PR is most certainly not. If this book is to achieve anything, it is to get organizations to think about all their social relationships with the same seriousness that they already approach health and safety. You don’t have to kill or injure your own workers to have a social impact, and therefore prevention and due diligence need to underpin all social relationships.

“prevention and due diligence need to underpin all social relationships”

In 2010 there was no externally acknowledged process to bring the different perspectives on the social risks of deepwater drilling before the Gulf of Mexico disaster. In fact, there is still little such activity in most countries even if there is now more debate in the USA. Nor are there many processes that bring the competing companies together with other “stakeholders” impartially to discuss other high-risk activities associated with the oil industry, such as fracking and coal-bed methane, tar sands, arctic or oil exploration in rural, environmentally challenging contexts (such as East Africa). However, such processes can exist—often when governments exert a little pressure. Such “multi-stakeholder” processes do exist on two very material issues for the sector: revenue transparency¹⁴ and the issue of public and private security forces.¹⁵ It is less conceivable that BP’s competitors could have come to the US Congress and criticized the company for being “below industry standards” on the issues of security or revenue transparency. Two prominent examples I have in mind here are the Voluntary Principles on Security and Human Rights, and the Extractive Industries Transparency Initiative. So, why then do oil companies not move to create such consensus mechanisms for other high-risk issues—such as deepwater drilling?

The answer to this question is both very complex (there are of course a range of technical and competitive issues) and strikingly simple. Business has not come together with other stakeholders to trade some of their individual power for a pooling of some non-technical risk because the process of doing so is very new, is not valued or understood by enough CEOs, and requires a vast range of “human skills.” Businesses will come together when governments make them do so, or the public outcry is so vehement, as in the case of the aftermath of the Bangladesh clothing factory collapse in May 2013 in which over 1,100 people died.¹⁶ Most businesses will not surrender even a little of their power for strategic reasons alone, although the time is coming when they might in order to increase the likelihood that their activities might enjoy greater social license.

“most businesses will not surrender even a little of their power for strategic reasons alone”

Governments too, within the context of civil uprisings across North Africa, the Middle East, Turkey, and Brazil, cannot rely on a four- or five-year trip to the ballot box alone as sufficient social legitimacy:

It is not enough that leaders submit themselves for periodical elections. Democracy demands a commitment to pluralism, the submission of the powerful as well as the weak to the rule of law, protections for minorities and respect for cultural and ethnic difference.¹⁷

Most modern ideas of what government and democracy are rest upon the idea that governments govern through the consent of the people. Through history, rulers have claimed divine right or historical precedent to maintain their hegemony. ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Acknowledgments
• Preface
• Part 1: Introduction
• Part 2: The Foundations
• Part 3: Building and Losing Conditions for the Social License
• Part 4: What Next?
• Notes
• Select Bibliography
• Index