Case Study Two: Scotland and the independence vote

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Governments too can lose social license – just look at the Scottish referendum

This Thursday’s vote on Scottish independence is historic. Whichever way it goes, things will never be the same again. It is only now – as the opinion polls have tightened – that the English establishment seems to be realizing this. Alex Salmond’s (the leader of the Scottish Nationalist Party) offer to pay the bus fares for each of the major UK parties to come to Scotland to fight to retain the union speaks to reality that all three are now a liability for their own cause. If there ever was a deal to be done on greater devolution, it should have been two years ago not a few days before the vote. If Scotland votes to leave the UK, then David Cameron will go down in history as the British Prime Minister who presided over the destruction of Britain – largely because “devolution max” was not an option allowed on the ballot paper. He bet that when given the stark choice of “in or out”, the Scots would retreat from the brink. However on Thursday Scotland might just call his bluff, and if they don’t this time the vote will be close enough to make another independence vote in the next ten years likely.

One of the most articulate commentaries I have read over recent days is from my friend and colleague the author Salil Tripathi, whose recent article in the Indian press gives as close to an objective assessment as is possible. He concludes:

 “Whether what unites them—a shared history, intertwined lives, and common imprint on the world—is strong enough to overcome the atavistic longing of an imagined community, which in Benedict Anderson’s memorable phrase all nation states are, will be known on Thursday night.”

You might wonder why I have chosen this as the second case study on a website focusing on the “social license” – we are not talking about a business activity of any kind? Well, I argue in my book that governments too need social license for their activities and that the three main UK party leaders have in many ways lost their social license in Scotland. This is most true of David Cameron and the Conservative Party which is almost unrepresented in the country, but during the past two years has become increasingly true for the Liberal Democrats and Labour as well. This is partly due to “identikit” nature of the three party leaders; Cameron, Clegg and Miliband can all sound similar to the Scottish ear (naturally more communitarian and Nordic in outlook). The issues that most Scots care about – healthcare and education – have increasingly moved to market-based systems in England under all three parties. This whilst the English nationalist – Nigel Farage (working under the strangely misnamed “UK” Independence Party) beats the drum of Mordor in the background and pushes all three party leaders to make crazy statements on issues such as immigration and Europe that none of them believe in. The “Russian doll” perfect storm of Scotland leaving the UK, and then the what remains of the UK voting to leave the European Union in the next five years, destroys two identities at once for those of us who have thought of ourselves as being British and European above that much less inclusive and progressive category of Englishness. This is no small thing.

On the positive side, the independence question has done wonders for the social contract within Scotland. If Jean-Jacques Rousseau was to be transported 250 years to be walking the streets of Glasgow or Edinburgh this week he would be delighted – reminding him perhaps of his ideal republic where decisions where made not be elites but through the participation of citizens. Predictions are that the turnout will be above 80% – unparalleled in nearly every democracy where voting is an issue of choice. Scotland will be an interesting and exciting place to think about social license and social contract for years to come.

So intellectually, a Scottish vote for independence would be very interesting and if I were living north of the border I would be very tempted to vote ‘Yes’. However as a hybrid, half Scottish – half English, and with no right to vote –  I can’t help hoping that my British identity will not be destroyed in three days time. I remember all the former Yugoslavs I worked with in the 1990s who had Serbian, Croat or Bosnian identity forced upon them through the events of those years. The Scottish vote is a peaceful act of self-determination, but don’t let the absence of bullets obscure the fact that we are moving into unchartered waters.

Case Study One: BP and the Gulf of Mexico

Case Study One: BP and the Gulf of Mexico

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The ruling by Judge Carl Barbier of the US District Court in New Orleans at the start of September 2014 poses a possible $18 billion in civil liabilities – a large part of the total costs for BP arising from the 2010 Deepwater Horizon oil disaster. The ruling asserts that BP acted with gross negligence and willful misconduct. BP is appealing and the legal process will undoubtedly take years to resolve itself.

My book on the ‘social license’ starts with the BP case study, in fact the first chapter is named “Macondo” – the name given by BP to its oil field in the Gulf of Mexico. I do not get into the legal arguments of the case directly as my book is about social license and not legal license, but the issues of due diligence: knowledge, preventing and mitigating risk and negative impacts, and levels of disclosure are highly relevant to the way I think businesses should manage their social license. I contend that better management of such things, whilst not necessarily preventing such disasters in all cases, can have a profound effect on the future activities of a company should they occur.

For those familiar with existing definitions of “the social license to operate”, the Macondo example might seem a strange one for me to have picked to start the book. There was no community directly adjacent to the deep-water drilling facility (other than those on the rig itself), it is often reported as an environmental disaster more than a social one and clearly it has a strong legal dimension. But I wanted to show the reader, from the start, that the ‘social license’ can have wider utility than just mining operations in Australia, Canada or Latin America, and that those implications can relate even to high-profile cases such as Deepwater Horizon.

One way that organizations, and in particular business, can manage the social license of their activities, is through multi-stakeholder approaches where businesses, governments and civil society (and sometimes trade unions) sit together to find pragmatic responses to complex problems. Very often this can include agreed strategies of prevention and risk mitigation. Acquiring knowledge of business risks and potential negative social impacts is now a requirement of business if it wishes to respect human rights under UN and OECD norms. The irony is that on some other issues before the 2010 disaster, BP had been rather good at understanding the value of multi-stakeholder approaches in minimizing social harms. BP was one of the founding companies of the Voluntary Principles on Security and Human Rights, which aims at controlling the behavior of public and private security forces, flowing from its own experiences in Colombia in the 1990s. BP is also a corporate party to the Extractive Industries Transparency Initiative that focuses on revenue transparency, comparing business revenues with government receipts. In addition, BP engaged Senator Mitchell to oversee its work in Indonesia, and responded to stakeholder concerns about social risks relating to the Baku-Tbilisi-Ceyhan (BTC) pipeline between the Caspian and Mediterranean Seas. Lord John Browne (the former BP CEO) describes these approaches in his two biographies and Christine Bader is eloquent on how such work inspired her during her time with the company in her book ‘The Evolution of a Corporate Idealist’.

It is because BP is a company associated with good social practice in some other parts of the world, that the Gulf of Mexico example is also highly relevant to discussions on social license. What was it about deep-water drilling that did not necessitate a similar multi-stakeholder approach to the risks involved? If there had been greater consensus between BP and its competitors about the appropriate levels of social risk management, would they have testified against the company in Congress in the same way? Since the disaster, BP has committed $500 million over 10 years to fund independent scientific research through the Gulf of Mexico Research Initiative which will indeed focus on issues of risk and mitigation and might develop greater stakeholder consensus in years to come. But in many ways the horse has already bolted.

I am interested why oil companies do now take a ‘know and show’ consensus –building approach on issues such as security or revenue transparency, but not on other issues of high public concern. Take for example the fracking debate in many parts of Europe where concerns over environmental impact are not (yet) informed by objective evidence and impartial opinion. If the greatest danger associated with fracking is indeed water contamination, why is so little attention given to the use of such fracking technology in water scarce areas of northern South Africa or Botswana, whilst so much is given to well-healed Sussex villages near Brighton? Will the fracking debate in Europe go the same direction as the GMO debate a generation earlier, where emotion gets in the way of the facts? Despite this social risk, as well as significant commercial and well as energy security dimensions, there is no significant multi-stakeholder initiative on fracking proposed as of yet.

For me the Deepwater Horizon example raises the importance of involving stakeholders in agreeing what adequate mitigation and risk management actually means before disaster strikes. It is much more expensive and time-consuming to do this after the fact, after social license has been severely eroded. In fact it might take a generation or two to actually to regain sufficient trust, legitimacy and consent. So why do we not see multi-stakeholder approaches to other material issues for the industry that are perceived to have significant environmental or social risk? At the end of the day, it is a leadership issue. CEOs need to convince shareholders and political leaders their voters (and perhaps also themselves first) that social license is indeed a material concept. As the recent University of Queensland report has shown, the loss of community trust can cost a mining company up to $20 million a week if operations are blocked, so it can also impact the bottom line even before the lawyers get involved.

Legitimacy – 10 things any business should do

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Legitimacy – 10 things any business should do

“The strongest is never strong enough to be always the master, unless he transforms strength into right, and obedience into duty.”

–  Jean-Jacques Rousseau (1762)

My book on the “Social License” defines the social license concept in relation to three foundational principles: legitimacy, trust and consent. It is the first of these three that is perhaps the most fundamental and hence the subtitle to the book: “How to keep your organisation legitimate”. The word does not appear in many CEO speeches but this does not mean that legitimacy is something not considered by clever business strategists, it is.

I won’t get into the definitional issues on this blog, but I do go on to explore three permutations of the legitimacy relating to both organisation and a specific activity (a little in the way Donald Rumsfeld once talked about knowledge). Organisations might have their own legitimacy but a specific activity does not, or an activity might be legitimate but the organisation might lack it, or both organisation and activity have sufficient legitimacy for the social license to root. It is only in this third variation that I believe social license can exist. I also dismiss cases where both activity and organisation are illegitimate (the fourth permutation) and leave this to the criminologists to discuss.

Anyway, the fourth chapter of my book sets out 10 things any business should do to try and improve its legitimacy – the first seven relate to the business itself, and the other three to the activity in question.

Things that help make a business legitimate:

1.  The provision of real value both in financial and social terms

2. Understanding the true social impacts of the business

3.  The opportunity cost of the company existing in social terms

4.  The efficiency of the business and the effectiveness of its management

5.  Company structure, governance and accountability

6.  Understanding the different needs of shareholders, stakeholders and rights-holders

7.   Paying enough tax and in the right place

And in relation to specific activity:

8.   Adequate due diligence: prevention and mitigation

9.  The provision of adequate remedies

10.  Appropriate levels of transparency and disclosure

Obviously I go into a bit more detail in the book itself but I am interested to hear what might be missing from the list?