Social License to Operate

The social license to operate is sometimes referred to as social license or license to operate. The basic idea of licensing is that an entity requires the approval of society to exist and to pursue certain projects, ranging from individuals driving a car to friends starting a restaurant, to multinational enterprises digging a new mine. Approvals are needed for the corporation and for each activity it undertakes. In most cases, these approvals are routine. However, when an activity is contested, the social license to operate becomes a salient concern for corporations and society. Social license reflects the acceptability of a corporation or specific corporate activities to social stakeholders and is especially important in heavy or extractive industries such as paper manufacturing or mining. This entry first provides a historical overview of the concept of social license to operate and contemporary views of the term. It then describes its relationship to other related concepts, including legitimacy and reputation.

Historical Overview

The idea that there would be a public interest in licenses goes back for at least three centuries. Jane McLeod and Hans Hansen examined the petitions to the French monarchy for printing licenses from 1669 to 1781. They assumed that arguments in petitions coevolved with the changing conception of what the government and the printing community considered a “good printer.” That is, the petitions for licenses were part of the discourse that defined the category of “good printer.” The most common types of qualifications that were included as arguments in the petitions were technical (e.g., knowledge of Greek and Latin) and moral (e.g., had not participated in the clandestine book trade). An uncommon but emerging qualification over the period was the public interest.

At the risk of oversimplifying, license issuance and renewal were routine events. Forms would be filled out, money would be paid, and inspections, cursory or thorough, might occur. However, in 1964, the license renewals by two television stations from Jackson, Mississippi, became much less routine. The Federal Communications Act required stations to operate in the public interest. Most stations paid only lip service to their moral and legal obligations to be fair and to act in the public interest, and the Federal Communications Commission routinely renewed licenses. Reverend Everett C. Parker, director of the Office of Communication of the United Church of Christ, organized a legal challenge to these two renewals. Evidence was advanced that the two stations discriminated against black people, who constituted more than 40 percent of the audience. The first challenge was rebuffed, and the religious petitioners were told that they did not have any standing to testify; only those with technical or competitive concerns had a standing. There was dissent within the Federal Communications Commission, however. The renewal of one of the licenses was appealed to the U.S. Court of Appeals. This court surprised many by voiding the license renewal and granting the representatives of the public interest standing to participate in the renewal hearings. In terms of 18th-century France, there was increased opportunity for debate on the moral grounds of public benefits. Circuit Judge Warren Burger, who later became chief justice of the U.S. Supreme Court, wrote the following in his opinion: “After nearly five decades of operation, the broadcast industry does not seem to have grasped the simple fact that a broadcast license is a public trust subject to termination for breach of duty” (Lobsenz, 1969, p. 32).

Also in the 1960s, the idea of corporate social responsibility developed traction, frequently in business schools. An important but debated component of corporate social responsibility was that corporations have responsibilities to more people than just their owners. Determining who these people were and what those responsibilities were helped engender the emergence of stakeholder thinking. In the social sciences, the concept of legitimacy was being revitalized. Legitimacy refers to the acceptability of a corporation or its actions and practices to a social system.

Contemporary Views of Social License

Since 1995, social license has become particularly prominent in the extractive and heavy industries. These include mining and pulp and paper manufacturing. These industries use lots of land and water, employ people in working conditions where safety is a concern, discharge waste—sometimes unsightly or smelly—from the production process into the environment, and undertake other activities that violate the values of some stakeholders. The social license to operate depends on the degree to which a corporation and its activities are accepted by social stakeholders, such as local communities and nongovernmental organizations. Social license is a topic studied by researchers in a variety of disciplines, including political science, law, sociology, environmental studies, and business. Social license is also a concern of practitioners; the term social license appears fairly frequently in newspapers and trade publications.

The social license to operate captures the dynamic and negotiated complexity of the relationship between a corporation and its stakeholders. First, the term license suggests that society can bestow and withdraw a license. Second, licensing involves interaction between the corporation and its stakeholders. This interactive view can be contrasted with the view of environmental forces as drivers, having a unidirectional, independent, and unambiguous impact. In many cases, corporations interpret, contest, negotiate, adapt, and collaborate with stakeholders. Third, the social, economic, and regulatory stakeholders often take action regarding all three types of licenses. For instance, increasing the regulatory burden may increase costs and jeopardize the economic license, and social stakeholders may lobby the government for a change in the regulation, thus affecting the regulatory license.

Relationship to Other Concepts

Social license is often contrasted with other types of licenses, usually economic and legal or regulatory. Legal stakeholders confer a legal or regulatory license to operate when the corporation complies with legal and regulatory rules for things such as building permits, product and workplace safety, and hazardous waste disposal. Economic stakeholders confer an economic license to operate when the corporation meets its debt-servicing requirements and profitability, stock price, and growth expectations. Social stakeholders have expectations regarding a corporation and its activities, and a social license depends on the acceptability of corporate activities. In general, the requirements for a regulatory license are typically more explicit than the expectations for an economic or social license, but they are not always completely explicit.

What is common to social license and legitimacy is that stakeholders make decisions based on acceptability to an explicit or implicit standard; reputation, in contrast, is based on comparisons with other corporations. The conceptual domain of legitimacy is broader than for social license, however. Social license most closely fits with moral and pragmatic legitimacy, in that the values, employment, environmental, and health outcomes of corporate activity align with the expectations of social stakeholders. Economic license fits with pragmatic legitimacy, and regulatory license fits with regulatory legitimacy. The cultural-cognitive dimension of legitimacy does not overlap clearly with social license, however.

Corporate reputation can be distinguished from the social license to operate by specifying the levels of analysis. A social license is typically characterized at the project or plant level. The accumulation of social licenses enhances the reputation or reputational capital of a corporation, which in turn enables it to more easily expand its operations or undertake new activities—that is, get social licenses for new plants, products, and so on. Yet social license exists for the corporation itself. At this level, the notion of acceptability distinguishes social license from corporate reputation, which considers comparisons among individual corporations, either holistically or on a variety of dimensions.