What Is the License to Operate? (2024)

In 1970, the economist Milton Friedman famously stated that:

The business of business is business.”

Explicit within this well-known quotation is the notion that an ethical business needs only to make profits and to obey the laws of the land. No other effort was required of a business in order to fulfil its real and perceived obligations.

Over the past decades, stakeholders have increasingly insisted that organisations, both public and private, produce goods and services complying with international expectations and standards regarding human rights, as well as environmental and climate protection. It is not enough for organisations to be efficiently run. They must do good as well.

For example, the Ernest and Young’s report on risks in the mining sector shows that SLO is still in the top 5 of risks that can affect mining operations. It’s worth mentioning that this risk had been in first position for 2 years in a row before that.

This has given rise to Grayson and Hodges coming up with a rephrasing:

“Today the business of business is everybody’s business.”

Concepts such as corporate responsibility, corporate citizenship, the triple bottom line and the license to operate have come to redefine the relationship between business, government and society.

The license to operate or the license not to operate covers a wide spectrum. The diagram below depicts the range of responses by stakeholders to an organisation. [copyright asserted]

Typically, stakeholders can either trust or reject an organisation. If the relationship is one of rejection, it is characterised by high involvement in the form of confrontation. The organisation has negative license to operate, and so stakeholders seek it to deprive it of its reason to exist.

Consumers will boycott products, or citizens will stage service delivery protests. Social media usually plays a distinctive role in this too. This is an organisation’s worst nightmare. It has no “deposit in the bank” and it is continually reacting to the campaigns and behaviours of the stakeholders.

When high levels of trust exist [strong social license to operate] the relationship is also one of high involvement, but here there is collaboration, joint problem solving and high levels of transparency. In my practice, I find that I am called in when the relationship is on the rejection side of apathy and deteriorating further. Often a trigger event has set off a negative spiral in the relationship. This makes it so much more difficult to create a license to operate.

In both the Confrontation and Collaboration modes, there is high negative or positive psychological engagement; whereas in Apathy mode there is little psychological involvement. The process of stakeholder engagement is designed to improve positive psychological involvement in the minds and perceptions of important stakeholders.