Social licence approach builds trust and avoids reputational risk

Social licence approach builds trust and avoids reputational risk

Katherine Teh, Managing Director, Futureye

Social licence to operate is not a fad. It’s not a new trendy Lefty campaign against business. It’s real. Any business that is performing well will include reputational risk in its Strategic Risk Register – and that reputational risk must include social licence to operate.

The Governance Institute of Australia, in comments in the Australian Financial Review in August,  is irresponsibly letting down its own members by suggesting they need not attend to issues beyond their legal responsibilities – this is what gets business into trouble!

Companies that ignore their social responsibilities, that refute “outlandish claims” by providing more and more, louder and louder proclamations of the benefits of their business, lose the trust of communities and create outrage. Once this takes hold, it is difficult to stop. No amount of investment in public relations campaigns will reduce the outrage, and the business is left wondering why.

Elmer Funke Kupper, the former head of the ASX, was closer to the truth in his comments to the AFR. He acknowledges the need for companies to understand their social responsibilities, but is right to be concerned that, if this is formally included in principles or regulations, it will become a “tick the box” exercise lacking real thought or lateral thinking. If management sees the company’s social responsibilities – the social licence to operate – as simply a business decision, the quality of the discussion around it will be flawed.

Successful companies engage with communities, consult on difficult decisions, admit when they’re wrong or have challenging issues to deal with. Successful companies plan ahead and deal openly with problems as they arise. When confronting social licence risks, the best strategy is always to acknowledge and seek to resolve them. They can be ignored for a time, but sooner or later the issue will reach the mainstream and political intervention will occur. Ignoring social licence issues always increases costs and risks in the longer term.

In today’s interconnected world it is impossible to successfully ignore community concerns. Public relations campaigns were designed for a slower, gentler time – not the ferociousness of social media and instantaneous engagement. While, for some, engaging with critics can be counter-intuitive, once their aversion is overcome they discover a rewarding and educational experience, creating long-term security for their business.

Unfortunately, many companies only come to terms with the need to engage after a watershed moment in the form of a major crisis, one that will make or break the business and possibly ruin many careers, undoing decades of positive contributions to society.

Most times these companies follow the strategy of making a well-considered decision, announcing the decision, then explaining it to interested parties. If there is a backlash, they double down, explaining further, talking louder about the benefits, and releasing a myriad of details to back up their decision.

It’s good for society – why can’t people see that?

But, once the community has turned and outrage has taken hold, any PR campaign will only exacerbate the anger. There will be no trust, and facts will be ignored. Emotion cannot be beaten by facts.

What happens in reality is spin and benefit selling actually do more harm than good. Rebuilding trust must start with engaging with society about its expectations and changing values and this feeds into the strategy of engagement and communication. To successfully address social licence, companies must deal with negatives not just positives. The concern is that, if the ASX council retreats from using the term “social licence” it could see companies reinforce their focus on spin and this will do nothing to address trust.

Rather than railing against social responsibility, the Governance Institute should be encouraging its members to avoid these maelstroms by ensuring their companies recognise their social licence to operate and their responsibilities to society are part of their board discussions about risk and resilience.

Rather than complaining about subjective interpretations of social licence, embrace those interpretations and address them. If management misreads public sentiment the business will suffer. If a business insists on sticking to its responsibilities under law and ignores the subjective views of the communities impacted, the business will lose – it will lose the trust of the community and, once this happens, no amount of positive PR and issuing of logical information will sway the community.

Boards must be aware; it’s their governance responsibility to be able to see the dangers before they arise and encourage the appropriate culture in management and in the business to address issues, rather than acting after the calamity has struck.

This is social risk. But it will become a financial risk.

October 2018