Required License to Operate

Strategic Security

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Required: License to Operate
 

Tensions are running high. A series of perceived slights by a mining company has angered the community, and the locals are ready to take action. They head to the mine site outside the village, steal explosives, and set them off, destroying access to the mine and damaging the water supply to the site. The damage causes the mine to close, and the country moves closer to an impending civil war, which will eventually kill thousands.

Such was the case in 1988 in Bougainville, Papua New Guinea, when citizens lost patience with a copper mining operation and decided to take action to stop it. Community stakeholders were upset with mining companies in general following World War II because mineral rights in Papua New Guinea were sold to international mining companies using a method that left many locals feeling they were not properly compensated. Following the purchase of the rights, the mining company did little to build relations with the local population, allowing these feelings to fester.

Once the mine was established in 1972, locals accused it of dumping chemicals and waste into waterways—damaging land values and harming the ecosystem. This caused further tension in the community, as locals felt the mining company had not sufficiently paid for the land and was damaging the surrounding area. Escalating measures further, townspeople then discovered that a majority of the profits from the mine went to sources outside of the local community.

These factors led to the attack on the mine, and Bougainville eventually plunged into war, closing the mine, damaging the mining company’s brand, and ruining relations with the local community. Today, the mine remains closed and is under armed guard. The Jubilee Australia Research Foundation conducted a survey of the local community and found “near universal” opposition to reopening the site, The Guardian reported in 2014.

The concept of having a social license to operate has not historically been part of corporate strategy. It was often relegated to the corporate social responsibility team, with case studies of social investments merely a profile on a “feel good” page of the annual report to showcase the noble deeds the company was doing across the globe. Now, however, those reports are gaining more attention as social license is becoming a major consideration for companies engaged in business development that affects both the environment and the economy of communities—particularly those where there is a history of civil or political instability.

Security plays a key part in making the social license to operate successful. Traditionally, security would be involved in protecting physical assets on the ground, contracting guards for the work site, and arranging protection details for executives in areas of unrest. But that’s rapidly changing. Corporate security must now be equally concerned with gaining the trust and approval of communities ranging from indigenous tribes in Brazil worried about mineral extraction to aboriginal groups in British Columbia, Canada, fearful of disruption and pollution caused by liquid natural gas facilities.

This is shown in examples from Guatemala to Mozambique, Peru to Senegal, where recent activism against mining, energy, and agribusiness operations has disrupted production, damaged capital equipment, and, in some cases like Bougainville, shut down operations. Along with disturbing the work environment and causing physical damage, these incidents generate negative press, damage the company’s global reputation, and undermine shareholder confidence.

Affecting part of the change in social license to operate is that, for companies in these industries, many regions of new development are also areas that continue to face civil unrest, terrorist activity, and war. This means that even if local antagonism is not targeted directly at the company, chances are the local development team will be affected and corporate security needs to be prepared. These projects often become a catalyst for brewing unrest and a focal point for dissent that local communities are unable to express directly to the government or the corporate home office. As a consequence, the foreign investor has to deal with the spillover, which could determine the success of the project.

To shed light on this issue, Security Management sat down with Nathalie Wlodarczyk—managing director for global risk consulting, economics, and country risk at IHS, which provides insight and analytics in critical areas to global businesses—to learn more about how social license is changing, and what role corporate security can play in managing the shift.

What’s the strategy?

In her role as the head of IHS’s Country Risk consulting team, Wlodarczyk works to develop intelligence solutions for clients in government and the corporate sector. However, she says there is no piece of software or reference manual that can guarantee a successful social license initiative. This is because the approach deals with people and their opinions, beliefs, and agendas. The initiative must be tailored to deal with all these factors, which will be different in each context. The company must be willing to change its focus because circumstances on the ground can shift quickly. 

To be effective, the social license strategy must be part of the evaluation and planning phase of the country-entry plan long before any digging or construction takes place. If it’s an afterthought, the damage is already likely to have been done, and the cost of the response will be high and often hard to recover from. 

Instead, Wlodarczyk says the first step in creating a social license to operate initiative is doing your homework before entering the country. “This starts with understanding the political and social power structure at all levels of the government and within the local communities,” she explains. “A sound understanding of the history of the communities impacted and the cultural norms of engagement is essential.” 

Additionally, when entering a new market or operating environment, companies need to understand local social and economic history, formal and informal power structures, the rights and protection of foreign investors, the strength of the rule of law in disputes, and any legislation or elections that may affect the company’s operation. Along with this basis of understanding, companies should also map out the who’s who in the new market, what drives them, and what these players have the power to accomplish.

Of course, people’s ideas and agendas can change for a variety of reasons, which means an effective stakeholder strategy has to be responsive. Speed of response is critical to head off a confrontation that could damage the company’s reputation, or worse, shut down operations. Identifying the scenarios that are likely to play out in the locality can help companies spot both the stakeholders who will wax and wane in influence, as well as new agendas that may emerge. 

Having an understanding of how things are likely to change is what allows a company to be proactive and maintain social license beyond the initial country-entry stage. It becomes the basis for successful stakeholder engagement and—where appropriate—a social investment strategy. It also informs how the company manages its reputation, both locally and globally. ​

Who’s got the power?

Identifying who holds the real power in the business locality is critical to success. Often, the formal and official channels of power are not the only ones that need to be managed. Parallel channels of power can be as—or even more—important to earning social license, Wlodarczyk emphasizes. 

Consider the case of an agribusiness company that wanted to set up operations in Sierra Leone, which Wlodarczyk has studied in her work on stakeholder mapping for IHS. The agribusiness company did everything by the book; it received the necessary licenses and permits from the national government, it got to know the local tribal leader—the paramount chief (PC), who in Sierra Leone is traditionally the custodian of community land—and it negotiated a lease for the community land with the PC.

However, the company didn’t realize that the PC was not the only important local decision-maker. His counterpart was a local member of parliament (MP). The two men were from opposing political parties and the MP was much younger, which in the eyes of the PC meant he was subordinate. So the PC excluded the MP from conversations and negotiations with the investor.

In the MP’s view, the PC was a turncoat, as he had switched his allegiances from the old ruling party to the new one, so the two were already at odds. The MP suspected the PC was out to replace him with a candidate from the ruling party in the next election and saw the agricultural project as an opportunity to undermine the MP. 

The MP rallied his constituents—many of whom were also young men—and set up blockades on the leased land to protest the development. “This escalated to confrontations with the police, escalating further when the protestors reached out to an international nongovernmental organization and accused the investor of a land grab, which made the events in this small corner of Sierra Leone global news,” Wlodarczyk explains. “As a result, the project stalled for more than two years—in large part because the investor made the mistake of not identifying all local influencers at the outset.”

Another case in Peru that Wlodarczyk has examined had more severe ramifications when a mining company had to deal with the unexpected result of a 2010 election. After three years of laying the groundwork with the national and local governments—including company funding of four community projects to improve health, education, farming, and infrastructure—the company’s investment was scuttled as a result of the election of a dark-horse opposition candidate who was against mining.

“While the company had managed to successfully map the stakeholder universe in great detail—in contrast to the Sierra Leone example—it did not anticipate how this landscape might change,” Wlodarczyk says. “In particular, the company did not expect this candidate to win the local election, so it had not invested time in building a relationship with him. In fact, the candidate had campaigned on an antimining platform and, true to his word, supported protests against the project once he was elected.” 

Opposition to the mining investment spiraled out of control rapidly, and within one year local protestors had destroyed equipment worth $2 million at one of the company’s other mines in the region, triggering the imposition of martial law in the area. Little more than a year after the election, the project was suspended, and has never been resumed. In this case, not only did the company suffer a significant financial setback, it lost an opportunity to put its resources elsewhere.

Companies must be vigilant in monitoring local conditions, attitudes, and social and political shifts, Wlodarczyk adds. They must also learn to anticipate and accommodate change in their operational plans. Companies must keep their ears to the ground—not just for the most likely scenarios and changes, but for the unlikely, yet high-impact, ones that have the potential to derail activities.

However, this is not a straightforward formula. It is hard work and change can “scuttle progress,” Wlodarczyk adds. Therefore, the other side of a successful social license strategy is to have an honest recognition of the company’s risk tolerance. Specifically, what level of risk or challenge is a company willing to accept?” she asks. “The risk-reward ratio and degree of tolerance will differ from company to company, but knowing where that line is can be important for a successful strategy—not least when managing the fallout of an incident such as a protest or strike.”

Who are the activists?

Along with identifying local stakeholders, companies must monitor the global community of activists and commentators who operate largely on the Web and through social media. While geographically removed from the project itself, these activists can have a real impact on projects in places where the Internet is hardly used. This means that even though a local strategy may be extremely successful and help the company secure buy-in from stakeholders directly affected by a project, this other constituency may feel differently, Wlodarczyk explains.

An example that Wlodarczyk cites is the Pebble Mine in Bristol Bay, Alaska, where some of the most vocal opposition came from activists in urban centers far away from the site itself. “A major concern was that the mine would adversely impact the [salmon] spawning grounds in the watershed that is downstream from the proposed mine,” Wlodarczyk says. “A number of gold buyers and retailers, including Walmart, have signed a pledge to boycott gold from the Pebble Mine.”

The online-activist stakeholders can be crucial for a company’s social license, primarily from a reputational risk perspective. Their voices carry far and they have access to media outlets and opinion shapers. These networks can also easily amplify the social discontent of a local community. Indeed, local activists are increasingly recognizing the power of these global activities and are incorporating social media tactics into their own activities. 

There is much that corporations need to do to develop and maintain their social license to operate. In many cases, an equitable balance can be achieved between development and local community interests. 

“Building and keeping social license is the responsibility of all employees—from the CEO supporting the contract negotiation to the engineer on the ground evaluating a construction site,” Wlodarczyk explains. “As relationships and power structures shift, the company cannot afford to lose its connection with the local community.”