See Also Part 1, published 16th May. Public distrust of big business poses large issues for all firms. For those in the control tower of the C-Suite, freedom to act can seem ever more constrained. Apart from legal and political limits there are also social demands. These demands amount to a “social licence”. Companies live within a community and need tacit public support. When this starts to fray, growth and profits may hit a brick wall. To busy execs a social licence can seem nebulous . But it’s about winning public trust and support for what the company does. Harvard gurus Michael Porter and Mark Kramer for example, argue companies need to do more than focus on profits and sales. They need to create social or shared value. For example, companies should care how they affect those at work, employees, communities, and the planet. Money alone can’t “buy” a social licence”. You can only win one through real connections which may start to change a firm’s behaviour—See six steps to tackling the social licence. Other ways to prevent the “social licence” turning toxic include
- Leaders doing the right thing
- Measure and reward
- HR Role
- Culture change
- Go beyond compliance
- Employee engagement
Leaders doing the right thing
“There is a new generation of chief executives out there, still a small minority, who have a new view of their role”
Matt Gitsham Ashridge Centre for Business and Sustainability 
These new CEOs show a passion for doing the right thing. They know affecting the big issues in the world will not always mean extra costs. Serious attention on these creates value, builds brand and indirectly affects their social licence. “The right thing” could mean stopping mal practices, speaking up about human rights abuses, pursing sustainability or taking initiatives that benefit humanity but won’t perhaps immediately sway shareholders. Over time, “doing the right thing” far outweighs any quick profit at the cost of doing harm and also means being concerned with how results happen, and when a business leader:
- Maintains their integrity and principles over profit even at the expense of the short term
- Risks speaking up despite being unpopular
- Holds fast to personal convictions in the face of opposition
- Listens intently and openly for criticism and suggestions
- Admits when they are wrong and has the courage to make changes
Another way to strengthen the social licence is through responsible business practices that affect the daily life of the company. These require the company to measure and report on whether individuals live the values and how they deal with ethical concerns. To support this reward and recognition systems must re-enforce desired behaviour. The leader’s job is to make sure these systems exist and drive behaviour in the right direction.
The HR department can play a key role in strengthening the social licence. In the past few HR professionals felt responsible for such concerns. The HR landscape though now looks transformed. For instance, the HR ethics agenda now embraces many areas previously out of bounds. We discuss the six most important one in our recent White Paper: No Hiding Place.
Culture—“the way we do things round here”—affects the social licence through a commitment to ethical standards and behaviours. These influence how others view the organisation. Words like “Values, Trust, Fairness, honesty, respect, integrity, openness, transparency, and responsibility” must become a natural part of the firm’s vocabulary. While only about 5 per cent of company chairmen tend to mention culture and values in their annual statements a clear trend exists for doing so. Words alone won’t do it of course. What matters is how they are turned into action. But together they help set the ethical tone and re-enforce the social licence. Experts claim a strong link between what a community expects and an organisation’s culture and capability. That is, get the culture right and you can affect what the community expects. The balance between the two influences a company’s reputation. See chart Source: Futureye.com, with permission
Go beyond compliance
Companies going beyond the basic expectations of society start to directly affect the social licence. Doing more than you must is a powerful way of saying you care what others think about your actions.One way companies can do this is through CSR activities. These may involve community contributions going far beyond the company’s actual need to trade profitably. At one end of the CSR spectrum can may mean supporting specific charities. At the other end may be giving resources to projects making a direct impact on the community, with little or no financial pay off to the firm’s bottom line. Procter & Gamble for instance, focuses on helping children in need around the world. Since 2007, the company has improved the lives of more than 210 million children through initiatives such as Protecting Futures. This helps vulnerable girls stay in school, and attend Hope Schools which increases access to education in rural areas of China. 
We see programs like Protecting Futures as an investment in the future that helps both children and communities thrive,” Jeff Roy, media relations manager, Procter & Gamble
Most stakeholders agree CSR is a ‘must do’.” According to one study, the majority (67%) of consumers say they’re more likely to buy products and services from a company if they know it supports good causes.
Winning the engagement of employees is yet another way to strengthen a firm’s social licence. This is also a well-researched route to growth. Of the many benefits from having engaged employees, one of the most valuable is how they become ambassadors for their company. By talking about their employer, enthusing and communicating their commitment, engaged employees directly help build the firm’s social licence.
A social licence to operate requires an integrated company approach. This implies strong leadership with an ethical focus, and often shifts in culture to change systems, structures and processes. Increasingly, we’re seeing the “social licence” of individual companies and even whole industries, being questioned. The challenges come from local activism, pressure groups, political concern or even global movements such as those opposing the power of capitalism to do harm. Smart companies don’t take their social licence for granted. They invest heavily in many of the above activities. They recognise they need community support for many of their business decisions. Message to the C-Suite: Ignore the social licence at your peril!  E, McNulty, Doing the Right Thing or Making a Profit – Which Comes First?, February 18, 2013, HBR Blog Network  FT Responsible Business June 12 2013  F. Allen, The Five Elements of the Best CSR Programs, Forbes, 4/26/2011 See also our series: The Five Pillars of Ethical Leadership in Business. Why not subscribe to www.ethical-leadership.co.uk and be notified of each new posting–it’s free! Just click on the Subscribe button on the top right hand panel.