You need a licence to open a café or sell wine from a UK store.
Should enough local people object you may be stopped. This is part of the “social licence”–where society affects what business can do.
That a firm needs a social licence seems strange. Yet most would agree business can only flourish with tacit community consent. Fail to take this into account and your business plans may fall apart.
In 1995 Brent Spa, for instance, became a turning point for Shell. Despite the money metrics, dumping the rig at sea was no solution. Public pressure blocked this route.
Shell therefore made changes. First the company put a greater focus on human rights. Second it took a new stance to state a company view on politics. Third, Shell became committed to sustainability. 
There are signs the “social licence” for large firms may be fraying at the edges. A new UK Populus opinion poll found two thirds of voters want the next government to be tougher with big business. There is also wide concern over top pay and ethics.
Big business and ethics now grab headlines, and with good reason. For instance, KPMG’s recent US Integrity Survey found a rise in employee readiness to ignore wrong-doing. The report revealed a general failure to report misconduct. This was despite the countless millions poured into compliance programs and systems to reduce risk.
While business can respond to community and stakeholder dissent, it often stops short of developing the capability, systems and skills that could win back community confidence – even after a disaster. Traditional stakeholder engagement or corporate relations strategies often exclude societal, political, or regulatory foresight – key elements in managing a business.
Katherine Teh-White, Managing Director, Futureye
With fading trust we see the term “predatory capitalism” start to surface in the press. An adverse climate leaves firms open to political attacks and new controls.
How a firm’s social licence can start to fray may not always be clear. Pfizer’s 2014 bid for the UK’s AstraZeneca has not been smooth sailing. The public stance of Sweden’s finance minister for instance weakened Pfizer’s right to proceed.
His public accusation the US firm failed to honour past promises damaged the company’s social licence to do as it wants. New and perhaps costly promises may have to be given to move the project forward.
There are other signs of wear on the social licence of big business. One is the ever rising costs from misconduct. For instance, the price paid by banks’ is huge. Apart from new and unwelcome regulations, the amounts in actual cash already exceed the sums set aside to cover bad loans. One former Lloyds Banking group chairman calls this “an extraordinary change.” 
Another dent in the social licence comes from recent public outrages. These include public and shareholder anger over Barclays’ bonus policy, despite the bank losing money:
We made recommendations about the structure of bank pay, including the deferral of bonuses, which so far have been largely disregarded.”
former Tory Chancellor, member of parliamentary banking standards commission
They also include community frustration over poor rail services, ever-rising fares and lack of investment. There are doubts over whether the train operators’ social licence will continue.
The same applies to the half dozen UK big energy suppliers. For example, the Labour leader Ed Milliband has promised new rules over energy and a power bill freeze. This can only mean these companies’ social licence is under severe stress.
Elsewhere, bad corporate behaviour of price and rate fixing, bribery, bonus madness, mis-selling and tax dodging are undermining trust, with serious implications for the social licence.
To sum up, a company needs a maintain a social licence to operate by addressing the concerns of communities. These now have the power of instant global communications and increasingly know how to use it. Demands for change, communication power, rising social expectations sophistication mean companies cannot take their social licence for granted.
Finally ethically-minded leaders who look after their social licence can gain a competitive advantage against those companies that think the social licence is all hot air.
- 1 E. Eeinrab, Former Shell Executive weighs in on ethical leadership, Green Biz March 19 2014,
- M Arnold, Cost of alleged bank wrongdoing exceeds bad-loan provisions, FT.com April 8, 2014
Read Part 2 on actions firms can take, due 22nd May.
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Here’s how I and my company Maynard Leigh Associates can help you make sense of ethical leadership
- Work with you to clarify what business ethics mean for your particular organisation
- Coach you to understand what it means in practical ways to be an ethical leader
- Run internal programmes to identify and develop core values–affecting company culture
- Assist leaders to learn to establish and communicate leadership tone–inspiring people to act responsibly
- Develop managers’ and leaders’ to talk about and promote business ethics with enthusiasm and confidence
- Advise on generating employee ethical engagement –where people go beyond the basic rules of compliance
- Develop new, creative ways to encourage people to speak up about ethical issues
- Strengthen HR Team and their ethical role
- Run forum theatre sessions to communicate about ethics in a highly interactive way
Write an article or feature for you on ethical leadership for your publication
- Be a keynote speaker about ethical leadership at your next company or public event