The concept “social license to operate” has started to gain traction in the media recently. The term has been attributed to Canadian mining executive Jim Cooney, who apparently coined it in the late 1990s. MiningFacts.org defines social license to operate (SLO) as being based “on the degree to which a corporation and its activities meet the expectations of local communities, the wider society, and various constituent groups.”

Sound vague and familiar? SLO is an offshoot of another vague but widely used concept, corporate social responsibility (CSR). According the CSR doctrine, corporations are expected not only to create wealth by producing and trading goods and services but to serve social causes, such as reducing unemployment and income inequality and advancing social justice. Specifically, the CSR doctrine dictates that corporations serve the needs of “stakeholders”—any group that argues to have a claim on the company (from employees to NGOs). The SLO concept focuses specifically on external groups, such as local communities and environmentalists whose permission businesses are told to seek for their operations. In Canada, the oil sands developers, oil pipelines, and mining companies are a target. In the United States, coal companies, oil and gas companies engaged in hydraulic fracking, nuclear power plants, and pipeline companies, among others, are targeted by protestors trying to curtail or to prevent their operations.

But do companies require a “social license to operate”? Is SLO a valid concept? I argue no. It is true that activists can disrupt and deter companies’ operations, such as the Northern Gateway oil pipeline (the development of which has been stalled, despite of tens of millions of dollars spent on PR and advertising by Enbridge Inc.). TransCanada’s Keystone XL pipeline is another stalled project that has been waiting for regulatory approval for six years due to aggressive lobbying by environmental and community activists. However, activists, local communities, and other constituent groups should not have power to deny or grant businesses “license to operate.” These groups should be free to boycott any company’s products and to protest non-violently, but they should not be able vote down companies’ right to operate by appealing to government. That would undermine the system of individual rights upon which production and trade of material values—and our survival and flourishing—depends.

Companies should be free to operate in any way they choose: to develop mining and oil sands operations, to build pipelines or nuclear power plants, to start and operate biotechnology ventures or any others—as long as they do not violate the individual rights of others, including their rights to liberty and property. The best way for companies to avoid boycotts, protests, and government sanctions is to produce and trade material values without violating rights of others. As an example, pipeline companies can invest in technology and proper maintenance to avoid property-damaging oil spills, and they should operate without fraud or deception.

The role of protecting individual rights belongs to the government. Objectively defined laws and punishments deter companies from violating others’ rights. On occasions when companies nevertheless violate rights, say, by damaging others’ property by polluting, the government must prosecute them, issue punishments, and make them pay restitution. Likewise, it is the role of the government to protect the rights of companies when others violate them, say, activists blockading roads or railways to disrupt operations.

When the government performs its role as the protector of individual rights—and when all property is privately owned—the concept of “social license” (or government license) is superfluous. When individual rights are recognized and protected and property is private, people are free to trade, or not, with each other. For example, if an oil company wants to build a pipeline, it needs to contract with landowners whose property they need to rent or buy. The company is also accountable for respecting the landowners’ property rights or face legal sanctions.

But what if individual rights are not consistently recognized and protected and all property is not privately owned—as is the case in mixed economies such as Canada and the United States? Does SLO then apply? Should “local communities, the wider society, and various constituent groups” be able to cancel companies’ right to operate, lest the companies do not meet these groups’ “expectations”? The solution in such a situation is not to jettison individual rights for a “social licensing” vote. Instead, we must uphold individual rights, by defending them through any means open to us, repeatedly telling the government to protect them (and if it doesn’t listen, voting it out of office). Our freedom and well-being—and businesses’ ability to create wealth—depend on that.

4 COMMENTS

  1. Indeed, individual rights must be protected. A problem is that the collective of voters in our democracy elect politicians who violate property rights by using “eminent domain”. That’s an issue for the “XL” shortcut of the Keystone oil pipeline – a court ruled against the pipeline company because they tried to use eminent domain. The solution is not vague “stakeholders” etc. but property rights.

    • Thanks, Keith, for that comment (and all the others you have made on my posts–I think you deserve the most active commenter award :-). To use “eminent domain” is a violation of property rights–by the government, whose role it is to protect property rights!

  2. The root of CSR et al is failure to recognize that:
    – We have laws to protect people against significant harms from actions of individuals and groups of individuals (companies are groups of individuals jointed together to achieve something, whether owners for profits or employees for wages and productive satisfaction).
    – The “Tort” law system can be used to get redress.
    – In a free market reputation is a very powerful market force, dishonest or irresponsible companies will be shunned by enough people that they will wake up and change, or go out of business.

    The root of those failures is a view of humans as incapable of thinking, including evaluating behaviours, and failure to understand that life requires clear thinking and actual productivity not theft.

    Neo-Marxists also have an aversion to a good justice system, my guesses as to possible reasons are their view of thinking or that they don’t want to be constrained by it. (Recall that Marx taught revolution by force. Amusingly, anarchists and Marxists have much in common.)
    (Even if CSR activists recognized the power of the human mind to figure things out, they’d have to understand the fundamentals of life otherwise they have no criteria to judge behavior against.)

    • Thanks, Keith. I wish more companies did defend themselves against the attacks of critics and claims by “stakeholders” and indeed sought redress through the courts.–Agree on your assessment on the neo-Marxists.

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