Blogs & Comment

Companies’ social licence is built slowly—but vanishes in a flash: Paul Klein

Too few companies appreciate how tenuous their position is

The burning Deepwater Horizon oil platform

Companies’ social licence to operate is slow to build, through communication and trust with communities over time. But it can be lost in moments, as with the 2010 explosion of the BP Deepwater Horizon oil platform in the Gulf of Mexico. (U.S. Coast Guard/Getty)

In August, 25 million cubic metres of contaminated water and mine waste, from the Mount Polley copper and gold mine spilled into British Columbia’s Hazeltine Creek. The owner of the mine, Vancouver-based Imperial Metals, quickly became a poster child for corporate irresponsibility in the mining sector.

The railway accident in Lac-Mégantic that left 47 people dead illuminated the dangers of shipping crude oil by rail—a practice that was essentially unknown to the general public. It also propelled U.S. rail executive Ed Burkhardt and his company the Montreal, Maine & Atlantic into headline news and cast considerable doubt on safety in the rail industry.

High profile incidents like Mount Polley and Lac-Mégantic have created a risky new context for businesses: tolerance for irresponsible business practices has never been lower and even the most obscure companies can be in the spotlight in a matter of minutes.

“Building and maintaining trust with your stakeholders is fundamental to the long term sustainability of your business,” says Paul Forgues, Principal Manager, Executive Networks at the Conference Board of Canada. This proved to be exactly what happened to Imperial Metals. After the Mount Polley breach, its share plummeted 46% and the company placed the mine on “care and maintenance” as it evaluated the incident.

Obtaining a social licence to operate involves a slow process of building trust with local communities. According to Dr. J.A. Fowler, Senior Manager Aboriginal Affairs & Sustainability at De Beers Canada, a social licence is perceptual, and it is created by how a company behaves and how consistent it is in its messages and its actions. “Does the company say what it will do, do what it says and is able to prove it? Does the company voluntarily partner with its stakeholders to help resolve issues? Does the company pay fair wages and fair compensation?” asks Fowler. “The more of these where the answer is ‘yes’, the greater the chance of obtaining a social licence to operate.”

MORE: How smart companies work with First Nations to get resource deals done »

Not surprisingly, reinstating a social licence that has been earned on the basis of establishing trust over a long period of time isn’t easy. “Loss of trust takes significantly longer to earn back,” said Richard Pringle, Manager, Corporate Social Responsibility & Community Investment at Hydro One. According to Pringle, to rebuild lost trust, companies must take responsibility for their actions, work openly and transparently, understand what and where the issues are by listening to stakeholders and customers and take action on these issues wherever possible.

Fowler agrees with this approach. “Basically the relationship has to be rebuilt and a new level of trust has to be developed,” said Fowler. “Essentially, one starts with small steps and constructively demonstrates by saying what will be done, saying what has been done and being able to demonstrate that this is the case.”

MORE: Sometimes corporate social responsibility actually means putting profit first »

While securing a social licence takes place far from the eyes of the public, it is lost in the court of public opinion. “You know you have lost your social licence when the public, stakeholders, and the communities through which we operate lose confidence or trust in the railway sector,’ said Gérald Gauthier, Vice-President, Public and Corporate Affairs for The Railway Association of Canada. “They believe the industry does not provide economic benefits, does not operate safely, does not consider the environment and does not care about the public.”

Ironically, companies in sectors such as utilities, resources and transportation who have worked long and hard to secure a social licence are ill equipped to react appropriately when it is lost. Most companies in these sectors have never had to convince the public that they are trustworthy. “The railway industry received a lot of scrutiny following the accident in Lac-Mégantic and had to dispel myths and answer to the public on a variety of safety-related topics,” said Gauthier. “Since the accident, Canada’s railways have launched new initiatives to improve safety, transparency and emergency preparedness, while accelerating their existing safety efforts.”

The discovery of bribery and fraud at SNC-Lavalin and the reputational damage Lululemon experienced after its recall of yoga pants that were too sheer shows that is doesn’t just take tragic accidents such as Lac-Mégantic or an environmental disaster such as Mount Polley. Canadian companies are closer than ever to losing their social licence but it’s not clear that they are prepared for the consequences.

Paul Klein is President and Founder of Impakt, a global consultancy that helps corporations and non-profit organizations to become social purpose leaders.