By Elliott Wall
After the announcement of the United States’ intention to withdraw from the Paris Agreement, a coalition of mayors, governors, universities, and businesses pledged their commitment to stand by the agreement regardless of America’s withdrawal. The commitment of over 900 businesses in the We Are Still In movement illustrates the increasingly important role companies play in addressing social and environmental challenges. The ownership of this responsibility is furthering a shift away from ‘license to operate,’ in which companies seek the passive acceptance of communities, toward ‘license to thrive,’ where companies more actively partner with communities to address critical challenges. At the local level, this approach requires more dynamic engagement, but when done well, it can establish businesses as essential community partners and contribute to the long-term success of both companies and communities.
A Different Type of Operating License
The term “Social License to Operate” is commonly used to describe communities’ and key stakeholders’ acceptance of a company and its operations. The ‘license to operate’ is not a tangible certificate but rather an informal and unspoken social contract between a company and the communities it impacts. The insight underlying this term is that, without the tacit approval of communities, businesses risk being rejected or forced out and cannot operate profitably in the long run.
The challenge with intangible social contracts is that they are ambiguous and vary across stakeholder groups. Communities are diverse and driving consensus around priority needs can be difficult. This is why strategic, sustained engagement is essential. Just as financial institutions employ rigorous “know your customer” processes to understand customers and manage risks, businesses must set in place “know your stakeholder” systems to identify, engage, and understand what’s important to key community stakeholders. Doing so can not only enable companies to get out in front of potential conflicts but can also surface valuable opportunities to support both corporate and community interests over the long-term.
Public expectations of such engagement are growing, as businesses are increasingly viewed as integral components of communities. Complementing the We Are Still In movement, an independent study sponsored by APCO, a public relations firm, of consumers across 15 global markets found that 77 percent of respondents believe that corporations have a bigger impact on their lives than they did a decade ago. Further, half of those surveyed indicated that companies have more influence on their lives than government, with 60 percent maintaining that companies serve roles previously filled exclusively by government. As companies expand and reach more people, they have an opportunity to demonstrate their societal value-add beyond just fulfilling commercial need.
Pioneering the License to Thrive
Acting on the opportunities to contribute to society requires a more proactive community engagement approach that underpins a detailed understanding of community needs. Ambuja Cements Ltd., India’s top cement manufacturing company, is among the leading firms pioneering the license to thrive – and benefitting as a result. When the now-$1.2 billion company started in the 1980s, it quickly realized that communities can be skeptical of cement manufacturing plants opening in their backyards. Understanding the company’s potential to support the communities surrounding their plants, Ambuja launched the Ambuja Foundation to implement a thoughtful approach to community engagement.
Crucially, Ambuja’s approach allocates a significant amount of time to relationship building. Seven to eight months prior to breaking ground on a new plant, Ambuja deputes Foundation staff to connect with community stakeholders, understand their priorities, and seek their partnership in a shared development agenda. They do so by identifying areas where community members congregate (by water stations, for example) and engaging in informal conversations to understand the community from the ground up. The upfront time spent building positive relationships provides Ambuja with a holistic understanding of the community and surfaces opportunities for the company to play a supportive role. And by building trust and demonstrating their commitment to the community, Ambuja’s business presence is encouraged by local stakeholders. During legally-mandated public hearings, community members often write letters and speak out in support of the business.
Ambuja Cement’s Community Support Model (LINK)
Obtaining the License to Thrive
As the work of Ambuja Cement illustrates, obtaining the license to thrive requires committed engagement and the strategic commitment of corporate resources. For communities to truly get behind a company, they must establish trust. This is achieved only after stakeholders understand the company and have confidence in its ability to support local interests. Likewise, companies can optimize their contribution only after taking the time to sincerely understand local priorities and deploying their resources in the most impactful manner.
When the appropriate steps are taken, the results can be meaningful for both parties. ‘License to thrive’ enables companies to meaningfully support communities while building a positive rapport that benefits the business. And with communities increasingly looking to companies to serve as partners in addressing critical challenges, this model is more important than ever. Leading companies must appreciate their unique role in society, engage actively, and work with communities to help them prosper.
Elliott Wall is a Senior Analyst with The Synergos Institute