CHAPTER 17.2 Social License to Operate Ian Thomson and Robert G. BoutilierORIGIN OF THE TERM other stakeholders about the mine or project. It is thereforeMining is accepted by the public at large because of the role “granted” by the community. It is also intangible, unless effortit plays in society as a provider of minerals and metals for the is made to measure these beliefs, opinions, and perceptions.public’s needs and general well-being. There can be no doubt Finally, it is dynamic and nonpermanent because beliefs, opin-as to the historic role that mineral exploitation has played ions, and perceptions are subject to change as new informationin the advance of societies, and in more recent times in the is acquired. Hence the social license has to be earned and theneconomic growth and industrialization of specific countries maintained.such as Australia, Canada, Chile, South Africa, and the United The social license has been defined as existing when aStates. At the level of individual mining projects, however, mine or project has the ongoing approval within the localthis acceptance is neither automatic nor unconditional, and community and other stakeholders (Business for Socialsince 1990 has become increasingly tenuous. Responsibility 2003b; AccountAbility and Business for Social During the 1990s, the mining industry found itself under Responsibility 2004), ongoing approval or broad social accep-close public scrutiny following a series of well-publicized tance (Joyce and Thomson 2000), and most frequently aschemical spills, tailings dam failures, and increasing conflict ongoing acceptance.with local communities around exploration and development The differentiation of approval (having favorable regard,projects (Thomson and Joyce 2006 provide a review of this agreeing to, or being pleased with) and acceptance (disposi-time period). In 1996, a Roper opinion poll showed mining to tion to tolerate, agree, or consent to) can be shown to be realrate last among 24 U.S. industries in terms of public popular- and indicative of two levels of the social license—a lowerity, behind the tobacco industry (Prager 1997). Internationally, level of acceptance and a higher level of approval. Althoughmining became a pejorative term in many circles and widely the lower level is sufficient to allow a project to proceed andregarded as a problem industry that was the cause of unwanted a mine to enjoy a quiet relationship with its neighbors, thepollution and undesirable social impacts. This pervasively higher level is more beneficial for all concerned, including thenegative reputation constituted a liability to the industry. industry as a whole. At a meeting with World Bank personnel in Washington On occasion, the social license can transcend approvalin early 1997, Jim Cooney, then director of international and when a substantial portion of the community and other stake-public affairs with Placer Dome, proposed that the industry holders incorporate the mine or project into their collectivehad to act positively to recover its reputation and gain a “social identity. At this level of relationship, it is not uncommon forlicense to operate” in a process that, beginning at the level of the community to become advocates or defenders of the mineindividual mines and projects, would, over time, create a new or project since they consider themselves to be co-owners andculture and public profile for the mining industry. The concept emotionally vested in the future of the mine or project.and terminology surfaced in May 1997 in discussions within aconference on mining and the community in Quito, Ecuador, EXAMPLES FROM REAL COMMUNITIESsponsored by the World Bank, and soon entered the vocabu- In the spring of 2008, a tourist traveling across southernlary of the industry, civil society, and the communities that British Columbia, Canada, checked into a motel in the com-host mines and mining projects. munity of Trail and chatted with the receptionist. As part of the exchange, the receptionist mentioned how excited she wasCHARACTER AND DEFINITION about “our” new project. Thinking this to be some improve-At the level of an individual mine or mining project (including ment to the motel, the visitor asked for more information andexploration projects), the social license is rooted in the beliefs, was interested to learn that the new project had captured theperceptions, and opinions held by the local population and imagination of the whole community. It was, in fact, a process Ian Thomson, Principal, On Common Ground Consultants, Inc., Vancouver, British Columbia, Canada Robert G. Boutilier, President, Boutilier & Associates, Vancouver, British Columbia, Canada, and Cuernavaca, Mexico 1779
1780 SME Mining Engineering Handbookto recover recyclable scrap metals at the nearby Teck Cominco and/or initiate a mining project. More specific definitions cansmelter. Clearly, the receptionist and her neighbors had very clarify the distinctions.positive feelings toward the project, the company, and the The free, prior, and informed consultation version of FPICsmelter; they not only approved of it, they identified with it, is perhaps best expressed in the Performance Standards onand in their collective minds the project was fully “licensed” Social and Environmental Sustainability of the Internationalto go ahead. Finance Corporation (IFC), although it is widely incorporated The same type of community identification with a com- into national regulations for environmental impact assessmentpany’s operations can be found in small cities and towns and the permitting of mining projects. In the IFC performancethroughout the world. In the information economy, San José, standards, free, prior, and informed consultation is defined asCalifornia, United States, and the surrounding vicinity identi- “an obligation of private sector project proponents to engagefies itself with the high-tech industry, dubbing itself “Silicon with project affected populations in a process of consultationValley.” With this level of support, community and private that is ‘Free’ (free of intimidation or coercion), ‘Prior’ (timelysector organizations see their interests as highly aligned, both disclosure of information—in effect before any decision ispolitically and economically. made), and ‘Informed’ (relevant, understandable, and acces- sible information)” (IFC 2006). Guidelines accompanying thePROBLEMS OF INTERPRETATION IFC standards indicate that the process of FPIC should leadThe concept of an informal social license is comfortably com- to “broad community support,” an aspect that is substantiallypatible with legal norms in countries that operate under the similar to gaining a social license. However, the FPIC processprinciples of common law. However, the concept runs into dif- is a specific action or series of actions limited to the periodficulties in countries such as those in Latin America that oper- before a one-time decision is taken about a project and focusesate under the principles of civil law, whereby only an official on application to the provision of information about a projectauthority can grant a license. As a consequence, while com- and its potential consequences.munities and civil society are eager to see the social license The free, prior, and informed consent version of FPICin terms of a dynamic, ongoing relationship between the com- is rooted in two international instruments: the Internationalpany and its stakeholders, regulators (and in turn many com- Labour Organization (ILO) Convention 169, also known aspanies) see the license in terms of a formal permission linked ILO 169, and the United Nations Declaration on the Rights ofto specific tasks and events in which the regulator plays the Indigenous Peoples, or UNDRIP (ILO 1989; UNGA 2007).central role in granting the license. It is important to note that these instruments are directed to In parallel with the above, there have been attempts in governments, not the private sector, and are limited to inter-Canada and the United States to link the social license to actions with indigenous and tribal peoples. Nevertheless,specific tasks, and also to reformulate the concept as some- they are of concern to the private sector because companiesthing that is established by the company and, once gained, are typically the advocates for development projects andbecomes permanent. For example, Shepard (2008), suggests frequently introduce the idea of a mining project before anythat the social license be defined as “a comprehensive and such discussion has taken place between government and thethoroughly documented process to have local stakeholders indigenous people. Therefore, as the initiators, companiesand other vested interests identify their values and beliefs as should take care that discussions with indigenous communi-they participate in scoping the environmental impact assess- ties do not proceed ahead of consultation between govern-ment and in identifying alternative plans of operation for the ment and the indigenous people, neither in the timing norproject.” (Notably this does not stipulate that the community, direction of the content.stakeholders, and other groups accept, approve, or support ILO 169, which has been adopted by 20 nations (thethe project). majority in Latin America), requires governments to “con- Neither of these capture the vision of the social license sult the peoples concerned…whenever consideration is beingas being dynamic, granted by the community (or at the higher given to legislative or administrative measures which maylevel, society in general), descriptive of the quality of the affect them directly;…establish means by which these peo-relationship between company and stakeholders, or involving ples can freely participate…at all levels of decision-making”;the reputation of the company and hence industry. Moreover, and stipulates that “the consultations…shall be undertaken,the words to operate are sometimes confused with the strictly in good faith…with the objective of achieving agreement oroperational phase of a mine’s life cycle when ore is extracted consent to the proposed measures” (Article 6). With respectfor processing. A better sense of the term to operate is to con- to mineral resources and mining projects, ILO 169 is quitetinue the project, no matter where in the mine life cycle, from specific in requiring governments to consult indigenous andthe initiation of exploration through to closure. tribal people “with a view to ascertaining whether and to what degree their interests would be prejudiced, before undertakingCOMPARISON WITH OTHER FORMS OF or permitting any programs for the exploration or exploitationCONSULTATION AND CONSENT of such resources pertaining to their lands” (Article 15).FPIC is the acronym used to describe free, prior, and informed UNDRIP includes a much stronger statement on free,consultation and free, prior, and informed consent. Both prior, and informed consent in requiring governments to “con-involve close interactions with communities around resource sult and cooperate in good faith with the indigenous peoplesdevelopment projects and have become critical issues for the concerned through their own representative institutions inmining industry. Superficially, there appears to be much in order to obtain their free and informed consent prior to thecommon between a social license and FPIC. From an opera- approval of any project affecting their lands or territories andtional perspective, however, while there is convergence, there other resources, particularly in connection with the develop-are also significant differences between them, with FPIC ment, utilization or exploitation of mineral, water or otherlimited in scope and time to gaining permission to enter land resources” (Article 32.2).
Social License to Operate 1781 In summary, FPIC is limited in scope and timing to a perceptions of the legitimacy and credibility of the mine orperiod before exploration or development can take place, is project and the presence or absence of true trust. These ele-linked to a one-time decision-making process, and, in the case ments are acquired sequentially and are cumulative in build-of ILO 169 and UNDRIP, is an obligation of governments. In ing toward the social license. The mine or project must be seencontrast, the social license to operate is an expression of the as legitimate before credibility is of value in the relationship,quality of the relationship between a private sector project/ and both must be in place before meaningful trust can develop.company and its neighbors. In terms of mining, this beginswith first contact at the initiation of exploration and contin- THE BUSINESS CASE FOR INVESTING IN ITues through the entire life of a project, which, if successful, Earning a social license to operate plays havoc with financial andincludes mine construction, mine operation, closure, and engineering schedules. It involves a fuzzy relationship-buildingincreasingly into postclosure. process that does not fit comfortably into technical planning frameworks that are built around concepts like material objec-WHO GETS SOCIAL LICENSE AND WHO GRANTS IT tives, deadlines, and deliverables. So, why is this necessary?A social license is usually granted on a site-specific basis. The same question could be asked about safety. DoingHence a company may have a social license for one mine or safety training does not seem to directly contribute to theoperation, but not for another. Usually the company has to bottom line, so why bother? Several decades ago, health andhave an operation that affects other groups, organizations, or safety was viewed in the same way that many people viewaggregates of individuals. The bigger the effects, the more dif- social responsibility today. It was the responsibility of a spe-ficult it becomes to get the social license. For example, an cialist in the company. Accidents were accepted as the aspectindependent Web-site designer working from a computer in of the job that justified higher pay. Today, safety is everyone’shis bedroom will normally get an automatic social license in responsibility. The leading companies have systems in placemost communities. A mining company wanting to relocate an to identify dangerous situations so that accidents can be pre-entire village faces a much bigger challenge. vented before they happen. The same will eventually be true The license is granted by the community, a term used for the social license. The leading companies will establishgenerically throughout this chapter to describe the network positive stakeholder relations before complaints and con-of stakeholders that share a common interest in a min- troversies erupt. Seeing the earning of a social license as aning or exploration project and make up the granting entity. essential part of the project requires a higher-level perspectiveIdentifying that the entity is a network makes salient the par- that is usually only the concern of executives and membersticipation of individuals, groups, or organizations that might of the board. However, project planners need to understandnot necessarily be part of a geographic community, and rec- this bigger picture too, in order to allocate sufficient time andognizes the reality that communities are inherently heteroge- resources to earning a social license. The next two sectionsneous. Calling them stakeholders means the network includes deal with this bigger picture.individuals, groups, and organizations that are either affectedby the operation or that can affect the operation. For example, Dependence on Resources Controlled by Stakeholdersranchers who would have to accept a land swap involving It is an axiom of the mining industry that mines are madepart of their pastureland would be affected by a proposed where mineral deposits are found. This truism reflects the factmining operation, without having much effect on it, provided that economically viable mineral deposits occur in relativelythey accepted the deal. By contrast, a paramilitary group of rare situations. As a result, the mining company has to adaptinsurgents or an international environmental group that might to the location of the deposit and engage with the people whoattack the mine site, each in their own way, would affect the live there and who consider the location part of their “back-operation, without being affected much by it. They would be yard.” By way of contrast, manufacturing industries can selectstakeholders too. the location for a new plant or facility based on a variety of Use of the terms community and stakeholder network factors, including the willingness of the local community toimplies that the license is not granted by a single group or accept them. Indeed, during the first part of the decade, thereorganization. It is a collective approval granted by a network was open competition between communities in North Americaof groups and individuals. Therefore, the existence of a hand- to host new manufacturing and assembly plants and wholesaleful of supporters amid a larger network of opponents would distribution depots.mean that the license has not been granted. Mineral deposits always have neighbors. Sometimes The requirement that the license be a sentiment shared they have a village right on top of them. Roads always goacross a network of groups and individuals introduces con- through someone’s land or affect someone’s traffic or hunt-siderable complexity into the process. It invites the question ing ground or watershed. Even the most remote mines haveabout whether a coherent community or stakeholder network to rely on the closest towns as supply centers and transporta-even exists. If one exists, how capable is it of reaching a con- tion links. The many ways that mines affect their neighborssensus? What are the prerequisites a community must have make those neighbors stakeholders. However, the effects gobefore it becomes politically capable of granting a social in the opposite direction too. The mine can be affected by roadlicense? These complexities make it more difficult to know closures, road use regulations, water rights negotiations, pro-when a social license has truly been earned. The complexities tests, blockades, and many other tactics that restrict access toof the granting process are discussed later in this chapter. essential resources. Even with the legal right to mine from a government, a company can still be stopped by a commu-COMPONENTS OF THE SOCIAL LICENSE nity determined to withhold the social license to operate. ForAccumulated experience supports the proposition made by example, in Peru alone, at the time of this writing, there wereThomson and Joyce (2008) that the normative components more than 80 sites where communities had prevented miningof the social license comprise the community/stakeholder companies from exploring or exploiting mineral deposits.
1782 SME Mining Engineering Handbook 1. Company’s 2. Dependence on Stakeholders Strategy for Strategic Resources 3. Company’s Motivation to Engage Stakeholders 4. Relationship Development Through Building Social Capital 5. Legitimacy Low Social Capital Acceptance of Project 6. Credibility Medium Social Capital Approval of Project 7. Full Trust High Social Capital (Psychological) Co-Ownership of Project Low Medium High 9. Situational Appropriateness 8. Probability of Attainment of Strategic Goals of Firm Strategy Figure 17.2-1 Adaptation of resource-based view to include process of gaining a social license to operate The management theory that covers this type of chal- gain depends on demonstrating the quality of the ore depositlenge is called the resource dependence view of competitive (grade, tons, mineralogy, feasibility, etc.) and finding a moti-advantage and the firm (Barney et al. 2001 provide a review). vated buyer who has the capital and knowledge needed toIt explains why some companies thrived while others strug- develop the property into an operating mine.gled. The theory emphasizes that companies need good rela- In the later stages, operating companies pursue a strategytionships with those who control essential resources that are of getting the property into production as quickly as possiblescarce, non-substitutable, or imperfectly imitable. That can in order to reap the financial rewards of selling the mineralsinclude things like labor skills, some materials, risk financing, from the site. Financial gain depends much more directly onaccess to some markets, special legal permits, and, for mining, the prices that mineral processors and industrial manufactur-access to land and mineral deposits. ers are willing to pay for metals. Mine builders want to buy properties that are fully per-The Role of Strategy mitted. They avoid properties at which stakeholders threatenFigure 17.2‑1, shows the resource-dependence view aug- to block construction or access to the deposits or other vitalmented with acknowledgment of the role of strategy in set- resources (e.g., water, power). Unfortunately, too many explo-ting priorities among resources. The chosen strategy (box 1) ration companies think they can ignore or hide these kinds ofdetermines which resource-controlling stakeholder (box 2) stakeholder problems.must be dealt with. At the same time, because strategy is often For example, from late 2003 to late 2004, the stock pricebased on existing strengths, the stakeholders the company can for Monterrico Metals, a mineral exploration company, rosedeal with best or worst influence what strategy will be chosen. from around 150 to 600 pence per share on the London StockTogether, these factors identify the stakeholders with whom Exchange. Drilling results had shown that the company hadthe company must engage (box 3). a world-class copper deposit at its Rio Blanco property in northern Peru, and the company was actively seeking a buyerDifferent Strategies at Different Stages of the Mine Life Cycle to develop a mine. During 2005 and 2006, however, localCompanies have different strategies for financial success peasants demonstrated against the development. A group ofat different stages in the life cycle of a mine. In the earlier academics and British parliamentarians known as the Perustages of exploration and feasibility, the strategy is to buy the Support Group went to Rio Blanco to investigate. Their find-rights inexpensively, prove the richness of the deposit, and ings noted a permitting dispute between two Peruvian govern-sell the property to a mine operating company. The financial ment bodies and, more particularly, widespread community
Social License to Operate 1783opposition (Bebbington et al. 2007). The news of the appar- box, “approval of project”). Ideally, the relationships shouldent absence of a social license was followed by fall in share evolve to this point before the company embarks on the feasi-prices with their value ultimately dropping almost 70%. In bility and permitting stages of a project.early 2007, a Chinese mining company bought control of thecompany amid complaints from some Monterrico investors Probabilities of Successabout the low price being paid. At the time of this writing, If the company continues to put effort into the relationshipthe project continues to be mired in conflict and there is no (dashed line to the left in Figure 17.2-1), it can raise the prob-indication that a mine can be developed in the near future. In ability of realizing its strategy and lower the inverse probabil-retrospect, the Monterrico investors should be satisfied with ity of sociopolitical risk. Taking the relationship to the levelthe price paid by the Chinese, but they have also learned the of full trust (box 7) yields exponentially more benefits forhard way that a social license to operate has a financial value the project and the parent company. At that point, the socialwhen a buyer is sought to develop the property. license reaches the level of “psychological co-ownership.” This will result in the success of the project, provided that theIdentifying Stakeholders Based on Strategy company chose a winning strategy in the first place. OutsideBoxes 1 and 2 in Figure 17.2‑1 cover the criteria for identify- factors, however, like the price of metals, can always stop aing stakeholders. Those who will be affected by the company project (box 9).are implicated by the company’s strategy (box 1). Those who Figure 17.2‑2 shows how the process of earning a socialhave the potential to affect the company are covered by the license to operate impacts a company’s bottom line. No accesscompany’s dependence on others for resources (box 2). The means “red ink.” Good access makes “black ink” possible,combined set represents the stakeholders with whom the com- provided all other aspects of the project are positive. Althoughpany should establish relationships. the relationship-building process might sound at first like a When an exploration team determines that there is an nonessential nicety, it is in fact a make-or-break factor for theinteresting deposit, the activities in the first three boxes tran- successful development of a project. Every continent has itsspire. The team must identify by name local stakeholders who “off limits” mineral deposits that represent projects whichmake up the community and then determine who speaks for failed at the relationship-building stage.each stakeholder group as an opinion leader in relation to theproject. When the exploration team first introduces itself to Dynamics of Stakeholder Influence in Networksthose stakeholders, the social capital in the firm-stakeholder Some stakeholders have legal powers to affect the company.relationship is very low (box 4). The social capital dimension Governments, for example, can often act unilaterally toof stakeholder engagement and relationship is explored later impose conditions or restrictions on mining activities. Mostin this chapter. For now it is sufficient to think of social capital stakeholders, however, have their effects through politicalas the collaborative capacity in the relationship. maneuvering. Some have direct control over the resources the The pivotal role of relationship building (box 4) implies company needs. They can exert influence by restricting accessthat a policy aimed at keeping a low profile raises the socio- to those resources through tactics like prohibitive pricing,political risks associated with the project. This is especially blockades, and boycotts.true during the earlier stages of the project. If the company Still other stakeholders have no legal power and no directdoes not engage with all elements of the community, there is control over essential resources. They can, nonetheless, formno way the community can collectively grant a social license. alliances that pressure those with such direct power to act inIf relationship development is delayed, the social license will solidarity with them. Environmental and human rights groups,also be delayed, usually at a high financial cost to the com- for example, usually fall into this category. They often use tac-pany. Thus, anyone who argues that there is no time for a tics such as putting pressure on senior governments to changelengthy relationship-building process with the community is mining regulations or on municipal governments to withholdunwittingly advocating for lengthy delays to be imposed by resource access (e.g., water) or on consumers to boycott thethe community. product (e.g., the blood diamonds campaign). Because political alliances among stakeholders oftenBuilding Social Capital and Earning Higher Levels determine their level of influence, it is important to knowof Social License about those networks in order to identify the stakeholdersEngagement entails the building of a relationship with the who deserve more attention. Methods for acquiring this kindstakeholders, who are often already organized into a geo- of information are discussed later in this chapter. For thegraphically based network (the community). If the relationship moment, it is simply important to recognize that the socio-proceeds well, the community may view the company as legiti- political dynamics in the stakeholder network do affect themate (box 5 in Figure 17.2-1) and may grant a provisional/ project’s support among stakeholders. Thus, acquiring a socialconditional social license (gray box, “acceptance of project”). license to operate is partially a sociopolitical task. Acceptance of the project can heighten the company’smotivation to engage with the stakeholders, provided the com- Resource Access Restriction at the Corporate Levelpany realizes that this is an investment in raising the probabil- Stakeholders can also have influence over a project in lessity that corporate strategic goals will be attained. Because not direct ways. For example, they can exert pressure throughall companies realize this, the line feeding back to a company’s control of access to local resources; they can also affect accessmotivation (box 3) may be dashed. Assuming the company to the resources that the parent company needs. The local proj-does choose to build more social capital in the relationship, the ect may or may not be constituted as a subsidiary companycommunity will come to see the company as credible (box 6). of a larger company. In any case, the “parent(s)” sponsoringConsequently, it will grant full approval of the project (gray the project also needs resources. These include equity or debt
1784 SME Mining Engineering Handbookfinancing, new highly trained employees, access to minerals atother sites in the future, and willing customers. Stakeholders sometimes restrict the parent company’saccess to those resources by launching national or interna- Co-tional campaigns that damage the company’s reputation. OwnershipThe effect on share value, for instance, can restrict accessto equity financing, which is particularly damaging to junior Full Trust Boundaryexploration companies, but can also affect operating compa-nies. A company with a negative reputation will also havemore trouble attracting talented employees. If the interna- Approvaltional campaign includes a consumer boycott (e.g., the dirtygold campaign), the pool of willing customers will shrink and Credibility Boundaryincome could be depressed. A bad reputation in communityrelations can also limit the number of sites a company canhave access to in the future, no matter whether they are green- Acceptancefield sites or acquisitions. At the international level, the absence of a world govern- Legitimacy Boundaryment to regulate mining has led to the creation of a world gover-nance regime instead. This network of international agreements,standards, and principles is supported by organizations that Withholding/Withdrawalfrequently finance mining projects, including the IFC and thebanks that have adopted the Equator Principles (EPFIs 2006) Figure 17.2-2 Levels of social license with boundary criteriaas criteria for project financing. They stand ready to legitimize between themthe complaints of local stakeholders and impose a variety ofsanctions against the offending company. Again, these affectthe parent company’s reputation and access to money, talent, The withholding/withdrawal level is shown as narrowerwilling customers, and even further national legal permits. than the acceptance level above it in order to symbolize the In summary, earning a social license to operate is neces- possibility that, globally, more projects are accepted thansary for protecting the financial viability of the project and the rejected. However, at present, this is a supposition. The empir-company. It is as deserving of time, money, and career pres- ical studies to determine the correct width of each level intige as drilling to estimate ore reserves or preparing quarterly Figure 17.2‑2 have yet to be done.financial statements. Legitimacy Boundary CriterionPHASES OF EARNING A SOCIAL LICENSE The academic meaning of the term legitimacy is evolving asA social license has distinguishable levels. At the same time, interest grows in how organizations gain or lose it, and whatthe process of moving from one level to another can be thought they can do with it once they have it (Deephouse and Suchmanof as a smooth gradient of continuous relationship improve- 2008 provide a review). Knoke (1985) defines legitimacy inment through increasing social capital. the context of stakeholders and politics as “the acceptance by Figure 17.2‑2 shows the four levels of social license the general public and by relevant elite organizations of anand the three boundary criteria that separate them. The lev- association’s right to exist and to pursue its affairs in its cho-els represent how the community treats the company. The sen manner.” This adequately summarizes the bare minimumboundary criteria represent how the community views the of legitimacy even when the company has no social license.company, mostly based on the company’s behavior. These Suchman (1995) offered a typology in his definition, whichtransition criteria were derived from language repeatedly has become a touchstone for scholarship on legitimacy. Heheard from communities themselves. Although the terms proposed a three-category typology of “legitimacies.” Theylegitimacy, credibility, and trust emerged out of years of were (1) pragmatic, based on audience self-interest; (2) moral,conversations while consulting with mining communities, based on normative approval; and (3) cognitive, based onsocial science and management literature has been shown to comprehensibility and taken-for-grantedness. Each of thesesupport these common-sense views. has aspects that continue to be important through higher lev- The levels and boundary criteria are arranged in a hierar- els of social license. For each type, the community asks itselfchy. It is possible to go both up and down the hierarchy. For questions such as the following:example, if a company loses credibility, approval will be with- • What do they want, and what is in it for us? How willdrawn and the project will hobble along on acceptance only. the consequences of their actions affect us? How will theIf a company loses legitimacy, the project will be shut down. project affect the environmental resources we absolutelyIf full trust is gained, the community will support and protect depend on for survival? If we cannot know that for sure,the project as its own. then can we at least discern whether they will be respon- sive to our concerns, or even share decision making withWithholding/Withdrawal Level us? (Pragmatic legitimacy)Starting from the base, the rejection level of a social license • Does anyone in authority recognize/respect us? Are theyis the worst-case scenario. This is when the community stops conforming to our social, cultural, or political norms?progress on the project. Many mineral deposits cannot be Have they followed the specific norms for approachingexploited because the community does not grant any level of us with their proposal? Will the consequences of theirsocial license to proceed.
Social License to Operate 1785 activity promote the general welfare of the community, Community members need to see action following their according to our (i.e., the community’s) own values? discussions. (Moral legitimacy) An essential component of credibility comes from open- • Does what they say make sense, or is it confusing or ness and transparency in the provision of information and strange? Has this been done anywhere else? Are their decision making that demonstrates the company to be consis- proposals routine practice, or is this uncharted territory? tent in the way it treats different groups. Alternatively, trans- Does that company have the capacity to do what they say parency reveals the principles that determine why one group they could do? In the case of an expansion of an exist- might be treated differently than another, reducing the risk of ing operation, it is precisely the absence of questioning feelings of discrimination or marginalization. that indicates cognitive legitimacy. This occurs when the The community asks itself questions such as these: presence of the company and its activities are already • Will they deliver on their promises? Are they living up taken for granted. They are seen as an inevitable part of to their responsibilities? Are they acting yet on what we the community economy. (Cognitive legitimacy) have already said concerns us? Do their promises sound In addition, particularly for mining exploration projects, unrealistic?the community may also ask questions about legal legitimacy. • Do we understand why they treat some groups differentlyDo they have the legal permits and permission to do what they and how that is consistent behavior?want to do? • Are they keeping any secrets? Do they avoid contact or The behaviors that lead to a company’s gaining legiti- avoid answering certain questions? Do they acknowledgemacy are associated with spreading awareness about the difficulties or do they often sound glib?company and what it does, listening to community concerns, Establishing credibility involves the cycle of listeningand following the official and unofficial local norms, cus- to the community, responding with information and propos-toms, and practices. The company should also have legal als, and implementing approved proposals. Demonstrations ofstatus nationally, inform the general public about how the responsiveness and principled action on a number of quick,proposed approach has worked for the benefit of other com- short-cycle initiatives help to build a reputation for credibilitymunities elsewhere, and solicit participation in planning and in the early stages. There is pressure to show immediate ben-decision making in order to allay fears about the company efits, as opposed to long-term promises. The planning horizonsimplementing an arbitrary, uninformed, or high-handed in rural communities seldom reach beyond one agriculturaldevelopment process. cycle. By contrast, exploration teams may make promises to be Failure to engage all segments of the community (e.g., fulfilled by the future buyers of their properties.young, old, men, women), to inform them and to solicit their In communities, credibility rests in a person’s willingnessopinions, is often seen as evidence of illegitimacy by those to keep one’s word. This is a significant challenge for the cred-excluded. It is normally important to communicate directly ibility of an exploration company that does not expect to bewith the bases and not rely solely on leaders. At the same around when its promises are to be fulfilled. Many communi-time, following local norms and protocols requires an under- ties are suspicious of anyone who intends to transfer respon-standing of, respect for, and use of local social structures and sibility for stated promises to some unspecified, hypotheticaldecision-making processes. person who may or may not even appear in the intangible mar- ketplace for mineral deposits.Acceptance Level To earn credibility, the company should make and keepWhen legitimacy is established, the community response is short-term promises. This is best done by using participatorythat they will listen to the company and consider its propos- processes to identify community priorities that the companyals. If, by their own standards, they have no reason to doubt can help make real. It helps to bring in third parties to verifythe company’s credibility, they may allow the project to tenta- the truth of company statements and to empower the com-tively proceed. This constitutes the acceptance level of social munity to be the watchdog on the company’s activities (e.g.,license. It is a minimal objective for any company. community-based environmental committees). Formal agree- As can be seen in Figure 17.2-2, the acceptance level is ments and contracts give structure; manage expectations; avoidbounded by the legitimacy criterion and the credibility crite- misunderstandings; and define rules, roles, and responsibilities.rion. This represents how acceptance requires that the compa- Providing false or incomplete information or failing to deliverny’s legitimacy must be firmly established and its credibility on promises will quickly destroy credibility and lead to ques-should at least not be damaged. tions as to whether the company is even legitimate. Acceptance can be rapidly withdrawn.Credibility Boundary Criterion Because companies usually carry so much economicCredibility is the foundation of trust. When a company is clout, they are often expected to provide the kinds of servicesregarded as credible, it is seen as following through on prom- that are provided by the government in the developed worldises and dealing honestly with everyone. There is little danger (e.g., education and health care). In contexts where govern-of the company saying one thing one year and a different thing ments have not provided these, a company’s reluctance to talkthe next. Moreover, the company’s policies are the same for about them may be taken as a sign that the company cannoteveryone that it deals with. be trusted to make an effort around basic community needs. The promise-keeping aspect of credibility is related to The best way to address these expectations is with programsthe company’s responsiveness to community concerns and to help governments develop the capacity to shoulder suchrequests. Legitimacy can be earned by just listening; cred- responsibilities. This shows a concern for the problems andibility requires doing something about what has been heard. a respect for local institutions. It avoids the trap that occurs
1786 SME Mining Engineering Handbookwhen governments decide they do not need to do anything how to overcome the obstacles to fulfillment. Whenever pos-because the company is taking care of the community. sible, the company involves community groups in decision Even when relations with the community are good, there making to ensure that no opportunity for capacity building andmay still be attacks on the credibility of exploration compa- economic development is missed. The company hands overnies from civil society sources that warn about the broken responsibility for specific aspects of the project to the com-promises or social or environmental problems experienced munity so that it takes ownership of both the opportunitiesby other communities that accepted mines. Even if some of and the risks.these stories are false or exaggerated, the sources are credible Trust is the much desired quality in a relationship that isbecause they do not appear on the surface to have anything only earned over time and typically emerges as the product ofto gain from misrepresenting the facts. When it is their word shared experiences that have positive outcomes for all parties.against a company’s word, the company appears to have the Trust is hard to earn, easy to lose, and very difficult to recovergreater motive to distort the truth. once lost.Approval Level Co-Ownership LevelWhen a company has established both legitimacy and cred- When the community sees the company as having full trustibility, a community is likely to grant approval of the project. in it, the community takes responsibility for the project’s suc-This means the company has secure access to the resources cess. Psychologically, both parties come to view it as a co-it needs. The community regards the project favorably and is ownership arrangement. The limits of the responsibilities ofpleased with it. The community is now resistant to the “us- each party are clear, as are ultimate decision criteria.versus-them” rhetoric of antimining groups. At this co-ownership level of social license, the company This level of social license represents the absence of becomes an insider in the community social network. In socialsociopolitical risk. However, it is really only at the thresh- sciences, social identity theory describes this level of relation-old of opportunity. Moving toward the top of this level, as ship as the dissolution of the us–them boundary (Williamsrepresented in Figure 17.2-2, a company can begin to reap 2001). Working closely together, the company and communitysome positive benefit from their relationship building, such as often develop creative solutions to all types of challenges. Ifstrong community support for expansion of operations. outside stakeholders, like the national government or an inter- national NGO, move against the interests of the company, theFull-Trust Boundary Criterion community will mount a campaign in defense of the company.In management research, trust has been shown to be impor- There have been cases where community members have trav-tant in relationships between and within organizations. It is eled to foreign countries to challenge false information beingjust as important in relationships between organizations and promoted by NGO critics. In another case, community mem-stakeholders. Trust is especially important when bridging the bers marched on the national capital to make a point to politi-boundary between businesses and civic sector organizations, cians who were proposing a new tax that would affect the mine.which include many community groups. Few companies have taken their community relations to Many typologies of trust have been proposed, some of the co-ownership level. Many have difficulty seeing beyondwhich range from weak or superficial trust to deeper, more the immediate transactions to the much greater benefits ofcomprehensive trust. As used here, the term full trust means a establishing strong collaborative relationships. Nonetheless,broader and deeper trust. as awareness of the potential benefits grows, more companies Credibility is a basic level of trust related to honesty and are attempting to win a higher level of social license.reliability. A full trust relationship is one where there is a will-ingness to be vulnerable to the actions of others. Communities MINE LIFE CYCLE AND FIRST IMPRESSIONSthat have a full level of trust in a company believe that the The level of social license that a company enjoys can fluctu-company will always act in the community’s best interests. ate throughout the life cycle of a project. Figure 17.2‑3 showsBefore moving to that level of trust, a community asks itself the six stages of the mine life cycle: (1) exploration, (2) fea-questions such as these: sibility, (3) construction, (4) operation, (5) closure, and (6) postclosure. Obviously, the earning of an initial social license • Have they fulfilled their promises repeatedly and to operate has to be complete before construction begins consistently? (stage 3). However, in the past many companies have treated • Did they handle the unexpected problems in a way that it as an afterthought sometime during the feasibility stage (2). showed they had our best interests at heart? Experience shows that ignoring the social license matter dur- • Did they share power in a partnership approach? ing exploration only creates problems in later stages. In order to gain full trust, a company has to go beyond In the first two stages, the key issue affecting the socialfulfilling its promises to jointly envisioning new development license is access to land for exploration and feasibility stud-goals with the community. The company will have initiated ies. The exploration stage is especially important because thatactivities to strengthen the community’s ability to plan and is when first impressions are made. It is a challenging periodachieve its goals for the future. For example, this can involve that can affect community relations during the whole minetraining in project management for local nongovernmental life cycle. A positive relationship can lead to the early acqui-organizations (NGOs) or technical training for government sition of a social license. If that is maintained, it can createemployees. The company has managed to explain its decision- the tolerance and mutual understanding needed to deal withmaking principles to the degree that people accept rejection of conflicts and different interests during the whole life of theproposals calmly because they trust the decision makers. mine. Conversely, bad relationships during exploration can When fulfillment of a promise will be delayed, the com- lead to social tensions, conflict, and premature shutdown ofpany explains why and asks the community for ideas about the project.
Social License to Operate 1787 1A Suspension 4A Termination Temporary (Often Repeated) Closure 1 2 3 4 5 6 Exploration Detailed Site Construction Operation Final Closure and Postclosure Investigation, Decommissioning 1–10 years Design, and 2–100 years In Perpetuity Estimating for Progressive 1–5 years Closure Rehabilitation Typically 1–3 years 2A Suspension TerminationSource: Adapted from Gadsby and Hodge 2003.Figure 17.2-3 Stages of the mine life cycleA DIFFERENT STARTING POINT IN EVERY these cases, the company must decide if it should withdraw,COMMUNITY and avoid the risk of conflict, or invest in working with theFirst impressions are important, but the preexisting disposi- community and other stakeholders over a longer period withtion to trust also matters. Some societies are less trusting than the hope that a creative compromise can be found.others. Figure 17.2‑4 shows percentages of generalized trust Many rural communities work on the tribal principlesby population in selected countries from a survey by Delhey of personal authority and obligations to relatives. Such com-and Newton (2005). Obviously, earning a social license in munities may see profit making as proper for the benefit of aBrazil would be much more difficult than in Norway. The family or community but improper for the benefit of any otherreasons for these differences are not entirely clear, but there body, from individual to company to state. In these societ-are suggestions that lower trust of people in general might be ies, all companies, except family and community-owned busi-associated with fractionalization in terms of income inequality nesses, start out as morally illegitimate because of the wayand political diversity and with higher levels of commitment they treat money and resources.to family, as opposed to the collective society. In many rural communities, nepotism is seen as com- In addition to these cultural factors, each community has mendable, not condemnable. Being seen as legitimate entailsits own history. Some have had negative experiences with pre- a willingness to treat community members like family. Thevious operators of a mine or exploration project. Some have company is expected to hire on the basis of local residence,had bad experiences of a more general nature, such as exploi- rather than qualifications. Becoming qualified is seen as some-tation by foreign companies or governments during colonial thing that comes after being hired, rather than before.times. In many developing countries, there is still suspicion of Time is a common point of difference. Companies wantcorporations from developed countries as a result of the Third things to happen according to a firm schedule, usually relatedWorld debt crisis that followed World Bank policies aimed to a budget. Communities, on the other hand, react organi-at encouraging developing countries to imitate rich countries. cally, take time to reach decisions, and typically have no con- All of these factors affect how long it will take to earn cern for the schedule set by the company.a social license in any particular community. Just because ittook 18 months to earn enough of a social license to buy land THE LOW-PROFILE FALLACYin one community, it cannot be assumed that the next commu- Earning a social license is complicated work. Occasionallynity will require the same amount of time. companies are tempted to opt for a strategy that seems easier. They decide to keep a low profile or “stick to their knitting,”DIFFERENT CULTURES, DIFFERENT EXPECTATIONS especially in the exploration stage. This, of course, makesThere are profound cultural differences between corporations establishing legitimacy, credibility, and full trust quite impos-and communities, especially communities that are rural and sible. The following anecdote describes the consequences.operate at subsistence level. Companies tend to expect com-munities to be coherent, cohesive, rational economic actors In July 2002, Meridian Gold, Inc., completed itswith a keen sense of judicial impartiality regarding the issu- acquisition of Brancote Holdings and took posses-ing or revoking of a social license. However, cultural differ- sion of the Esquel gold deposit, an exploration proj-ences can radically redefine the meaning of these qualities. ect located in the Cordón de Esquel in northwesternThe community’s perceptions are filtered through their world Chubut, Argentina. At the time, the concept of devel-view. For example, the Dongria Kondh tribe, in the state of oping a mine at the Esquel gold deposit enjoyed gen-Orissa, India, consider their mountain sacred and view the eral acceptance in the nearby town of Esquel as abauxite mining proposal by Vedanta Resources as an assault result of successful efforts by Brancote to develop aon all that is good and holy (Survival International 2008). In positive relationship with the community. However,
1788 SME Mining Engineering Handbook popular sentiment changed very quickly as Meridian failed to respond to requests for information and assis- Norway tance, and as local permitting authorities expressed a Sweden lack of confidence in the company and its actions. Canada Over the following months, the situation became China more polarized with the formation of community- New Zealand based groups organized to seek information and Australia clarification from the company on various issues. In Germany India the absence of replies that satisfied these community United States groups, an organized opposition to the idea of a mine Ukraine formed in the town. Various protests, marches, and Britain meetings took place with a common theme of “No to Mexico the Mine.” Attempts to reach a solution through dia- Armenia logue led by the Church failed to gain any momentum Russia and, under increasing pressure from the local popu- France lation and growing national and international opposi- Ghana tion to the project, the mayor of Esquel authorized a Chile plebiscite on the future of the proposed mine develop- Romania ment. On March 23, 2003, the population of Esquel Georgia voted 81% (of a 75% turnout) against the mine. In a Nigeria subsequent independent investigation by Business for Argentina Social Responsibility (2003a), it was noted that the Slovenia Esquel gold mine project was characterized by a lack South Africa of engagement by Meridian with the community. This Colombia lack of engagement and the inability to have a mean- Macedonia ingful dialogue about potential risks (and benefits) was Peru the dominant factor influencing the community not to Philippines support the mine. In practice, the company did not Turkey provide timely and useful information, and on occa- Brazil sion made it difficult to obtain information, for exam- 0 20 40 60 80 ple when the company refused to provide copies of the Percentage of Population Trusting Other People environmental impact study, a public document, avail- able in CD format. What community members wanted Source: Data from Delhey and Newton 2005. was to feel informed and listened to, to participate in a Figure 17.2-4 Percentages of generalized trust for selected real dialogue, and for the company to be responsive to countries their concerns. In short, the community wanted a part- nership, something that the company never attempted to deliver (Business for Social Responsibility 2003a). marginalized from information and participation that The collapse of the Esquel project was financially may well respond by rejecting the project. disastrous for Meridian, with the company obliged to • Undermining the company’s credibility by failing to take a write-down of US$542.8 million. As of June deliver on promises already made or by providing false 2009, the project remained frozen with a majority in or incomplete information. the community firmly opposed to any form of mineral • Failing to understand the internal structure of the com- exploration or mine development. munity and existing relationships between stakeholders and thereby unwittingly creating or amplifying rivalries Such scenarios are becoming more frequent. They are not or divisions that lead to conflict.always caused by a failure to talk to the community stakehold- • Failing to respect and listen to the community and relyingers. In most of these types of cases, the exploration teams have on legal positions and permits to operate.held community meetings. They have explained their plans. • Failing to maintain close contact with the communityThe community representatives showed approval for the proj- when there is a change in project management or owner-ects. So what went wrong? Why do things so often fall apart? ship, thereby weakening the continuity needed to sustain Practical experience points to a number of problems cre- the social license.ated by the exploration team themselves. The most common • Misunderstanding, usually overestimating, the quality ofproblems are as follows: the relationship with the community by confusing accep- tance with approval, and cooperation with trust. • A failure to invest fully in relationship building, an approach generally justified by the knowledge that most exploration The last pitfall is particularly pernicious. Individuals and projects fail. Explorers often choose to delay full engage- groups will cooperate with the company for many reasons, ment with stakeholders until the “right moment” or when including courtesy, a desire for gain, a perception of having no there is certainty that the project will go ahead. alternative, or, as is often the case with authorities, a sense of • Selective engagement. Talking only to those who are obligation. Cooperation for these motives does not necessarily already friendly toward the project creates a group require a trusting relationship.
Social License to Operate 1789MAINTAINING A SOCIAL LICENSE Tapping Sources of Social Capital Across the PhasesThe four-level-phase view of earning a social license is sim- Developing the Structural Source of Social Capitalplistic. It helps mark progress and breaks the process into a The structural source of social capital deals mostly with thepractical, phase-like approach. It also highlights important pit- patterns of connections in a network. For example, many net-falls. However, every community and stakeholder network is works have a core-periphery structure. The members at theunique in some ways. There is no one-size-fits-all process for core are well connected and influential. The peripheral mem-earning a social license. There is always a need to adapt and bers are more isolated with less access to resources. The struc-adjust to the specifics of each case. For that reason, it is also tural dimension also deals with the strength of each tie. Inimportant to understand the theoretical process underlying the a community network, for example, the groups or individu-phases. Any necessary adjustments and adaptations can then als with many weak ties will have access to a greater varietybe derived from first principles. of information than others who have only a few strong ties. However, those with strong ties will be more capable of col-Continuous Building of Social Capital laborating with one another to get things done.The movement from legitimacy through credibility to full When company representatives first arrive in a remotetrust is a process of building and balancing the social capital community, they begin forming ties with the network of com-in the relationships between the company and the members of munity stakeholders. In the process of everyday transactions,the network. they form very weak network ties with the hotel desk clerk, the restaurant owner, and the taxi driver. Since these peopleDefinition of Social Capital are all well embedded in the community, these ties representAdler and Kwon’s (2002) definition of social capital says, bridges between the community network and the company’s“Social capital is the goodwill available to individuals or internal network. The leftmost panel of Figure 17.2‑5 showsgroups. Its source lies in the structure and content of the one thin line going from the company (i.e., the solid circle) toactor’s social relations. Its effects flow from the information, one rather central member of the community network. This isinfluence, and solidarity it makes available to the actor.” In meant to represent a bridging relationship between the com-other words, the effects of social capital flow from what it is, pany and community. With nothing more than a weak bridgingnamely, information, influence, and solidarity. relationship in the community, the company is a peripheral Examined more closely, social capital can be seen as a member of the community network.set of benefits that network members can enjoy because of As the project proceeds, the company’s presence growstheir unique patterns of connections in a network. (In social in terms of numbers of representatives and in numbers of con-network analysis, the technical terms for connections in a net- tacts with community members. Some of these relationshipswork is ties.) The benefits fall into three general categories. deepen. The company goes from having bridge relationships,First, social capital is access to the information that flows to actually being a semiperipheral member of the communitythrough the network. People who act as bridges between oth- network. At this point, the company may also have createderwise unconnected clusters of network members are espe- enough trust (relational source of social capital) and under-cially likely to enjoy this type of benefit. They have “bridging” standing (cognitive source of social capital) to be able to usesocial capital. Second, social capital is solidarity in support of its social capital to get an acceptance level of social license.group norms and shared identity. For example, members of The network structure would look something like the middleimmigrant communities often stick together and police one panel of Figure 17.2‑5, where the original line representinganother’s behavior for mutual protection and benefit. This is the relationship formed in the leftmost panel becomes thickeran aspect of “bonding” social capital. Third, social capital is in order to represent a stronger relationship.influence in the network. Those who have a good balance of The rightmost panel of Figure 17.2‑5 shows the companybridging and bonding often enjoy a greater capacity to solicit as a member of the core of the community network. In thisassistance and resources from others, whether it is for a socio- position it has considerable influence in the community andpolitical purpose or a more personal goal. much more ready access to community-controlled resources. This would be a typical pattern for a company with an approvalSources of Social Capital level of social license.Adler and Kwon (2002) say the source of social capital is inthe structure and content of the social relations of network Developing the Relational Source of Social Capitalmembers. The structure refers to the network pattern—a The relational source of social capital includes related quali-bridging or bonding pattern, for example. The content refers to ties of social interactions like reciprocity, shared identity,qualities of the relationships between pairs of network actors. and trust.Adler and Kwon drew upon a set of distinctions proposed ear- Reciprocity. Reciprocity begins with the simplest oflier by Nahapiet and Ghoshal (1998), who also identified a courtesies in polite interaction. In many cultures this quicklystructural source of social capital, but divided the content into involves mutual gift giving. As relationships develop, it istwo distinct sources, the relational and the cognitive. The rela- most prominent as various kinds of mutuality, includingtional source encompasses qualities like reciprocity, mutual mutual respect and mutual self-disclosure. Reciprocity shadestrust, and shared identity. The cognitive source covers shared into generalized trust when the parties forgo immediatelanguage, shared problem-solving paradigms, common strate- advantages to themselves in favor of actions that support thegies, and even shared goals and values. long-term interests of the group or of the bilateral relationship. By cultivating these three sources of social capital simul- This shows reciprocity because it requires a faith that suchtaneously, a company can raise social capital in the commu- sacrifices will be reciprocated by others. In this way, reciproc-nity. Then it can “cash in” the social capital for a social license ity contributes to the solidarity benefit of social capital.to proceed.
1790 SME Mining Engineering Handbook At a more abstract level, parties might use the same cog- Company at Company in Company in nitive tools for approaching problems. For example, if both Periphery Semiperiphery Core community stakeholders and the company habitually use strategic planning frameworks like cost–benefit analysis, strength-weakness-opportunity-threat analysis, critical-path analysis, and decentralized decision making, then they will enjoy more social capital together. More often, the stakehold- ers do not share these cognitive frameworks with companies. In those cases, both sides need to learn each other’s ways of approaching collective action tasks. As the community learns the company’s analytic techniques, it gains capabilities thatFigure 17.2-5 Structural dimension of social capital at each it can use to achieve whatever goals it sets for itself, whetherstage of the social license those goals are poverty reduction, ecological footprint reduc- tion, or general community development. Quite often the issues on which firms and stakehold- Shared identity. Shared identity is important in pre- ers must develop a mutual understanding concern the generalventing us–them dynamics from taking root. Members of direction of future development in the community. Communitystakeholder groups all share an identity by virtue of their stakeholders want to know what life will be like after the minemembership in that group. Likewise, company representatives opens or after the mine closes. They need to know about down-share an identity, especially in their roles as representatives. sides such as population influx and the possibility of moreTwo strategies can be used for avoiding intergroup conflict in crime. For its part, the company wants to know what the com-such situations. munity’s priorities are for future development. Balancing short- First, ties that cut across groups insulate members of each and long-term interests here means not promising too much justgroup from viewing members of the other group as “them.” to get an acceptance level of social license. In these cases, aCrosscutting links either bilateral relationships or group mem- future visioning process is in order. The process helps set plan-berships (that include people from both the stakeholder group ning priorities and taps the cognitive source of social capital.and the company). For example, some company employeesand stakeholder group members might both attend the same How the Sources Work Togetherchurch and participate cooperatively in events there. Although the sources of social capital can be described as The second strategy is to heighten the salience of group distinct, in practice they are intertwined in every action andmemberships that completely encompass both groups. For activity. Likewise, the stakeholders’ perceptions of legitimacy,example, both stakeholder group members and company credibility, and full trustworthiness develop organically alongemployees might be citizens of the same country. Appeals to with the structural, relational, and cognitive aspects of thenationalistic sentiments can dissolve intergroup rancor and relationships.focus people on their shared interests. At the highest level of social license, psychological co- Structural with Cognitiveownership, the community, and the company share an identity Speaking the same language allows more communication tocentered around the industry itself. This happens, for example, occur in the same amount of time. Inversely, communicatingwhen a community starts describing itself as a “mining town.” more frequently tends to create a shared set of understandings Trust. Trust is a very important aspect of the relational and frameworks. Shared understanding contributes to cred-source of social capital. As Figure 17.2‑5 shows, a company ibility because the stakeholders understand more thoroughlywill start at different levels of trust even before any relation- how mining works. Understanding, of course, also contributesship begins. Early in relationships, trust is based more on to the cognitive aspect of legitimacy.calculations of risks and benefits and is limited to specificshort-term transactions. Later on, trust comes to be based more Structural with Relationalon knowledge of the other party gained from experience over The gradual integration of the company into the stakeholdera period of time. Trust grows as the other party consistently network (e.g., Figure 17.2‑5) begins to create a shared iden-keeps promises and demonstrably acts in the interests of the tity. The community gradually sees the company as a fixture inperceiver. This knowledge-based trust is important for gaining the network. As crosscutting ties increase in number, a sharedthe acceptance level of social license. Companies can foster identity can emerge, thus tapping into the relational source ofthis kind of trust early by taking every opportunity to listen to social capital. Likewise, any preexisting shared identity canthe community and respond quickly (Svendsen et al. 2003). facilitate the company’s integration into the local network. For example, a local or domestic company might be able to createDeveloping the Cognitive Source of Social Capital and strengthen ties more easily within the network.The cognitive source of social capital comes from mutual Integration into the network builds legitimacy. Early inunderstanding and agreement between the parties in a rela- the process it creates the awareness and helps spread under-tionship. At the most basic level, speaking the same language standing needed for cognitive legitimacy. Later it contributescreates a modicum of social capital. The level of language, to the taken-for-grantedness of the company’s presence, ahowever, is just as important. Companies must always use more advanced form of cognitive legitimacy. Similarly, build-nontechnical language in their communications with stake- ing trust, reciprocity, and shared identity contributes to moralholders, even when it means using more words or losing some legitimacy. Cognitive understanding contributes to pragmaticnonessential precision in meaning. legitimacy, and vice versa.