Social license to operate

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CHAPTER 17.2

Social License to OperateIan Thomson and Robert G. Boutilier

ORIGIN OF THE TERMMining is accepted by the public at large because of the role it plays in society as a provider of minerals and metals for the public’s needs and general well-being. There can be no doubt as to the historic role that mineral exploitation has played in the advance of societies, and in more recent times in the economic growth and industrialization of specific countries such as Australia, Canada, Chile, South Africa, and the United States. At the level of individual mining projects, however, this acceptance is neither automatic nor unconditional, and since 1990 has become increasingly tenuous.

During the 1990s, the mining industry found itself under close public scrutiny following a series of well-publicized chemical spills, tailings dam failures, and increasing conflict with local communities around exploration and development projects (Thomson and Joyce 2006 provide a review of this time period). In 1996, a Roper opinion poll showed mining to rate last among 24 U.S. industries in terms of public popular-ity, behind the tobacco industry (Prager 1997). Internationally, mining became a pejorative term in many circles and widely regarded as a problem industry that was the cause of unwanted pollution and undesirable social impacts. This pervasively negative reputation constituted a liability to the industry.

At a meeting with World Bank personnel in Washington in early 1997, Jim Cooney, then director of international and public affairs with Placer Dome, proposed that the industry had to act positively to recover its reputation and gain a “social license to operate” in a process that, beginning at the level of individual mines and projects, would, over time, create a new culture and public profile for the mining industry. The concept and terminology surfaced in May 1997 in discussions within a conference on mining and the community in Quito, Ecuador, sponsored by the World Bank, and soon entered the vocabu-lary of the industry, civil society, and the communities that host mines and mining projects.

CHARACTER AND DEFINITIONAt the level of an individual mine or mining project (including exploration projects), the social license is rooted in the beliefs, perceptions, and opinions held by the local population and

other stakeholders about the mine or project. It is therefore “granted” by the community. It is also intangible, unless effort is made to measure these beliefs, opinions, and perceptions. Finally, it is dynamic and nonpermanent because beliefs, opin-ions, and perceptions are subject to change as new information is acquired. Hence the social license has to be earned and then maintained.

The social license has been defined as existing when a mine or project has the ongoing approval within the local community and other stakeholders (Business for Social Responsibility 2003b; AccountAbility and Business for Social Responsibility 2004), ongoing approval or broad social accep-tance (Joyce and Thomson 2000), and most frequently as ongoing acceptance.

The differentiation of approval (having favorable regard, agreeing to, or being pleased with) and acceptance (disposi-tion to tolerate, agree, or consent to) can be shown to be real and indicative of two levels of the social license—a lower level of acceptance and a higher level of approval. Although the lower level is sufficient to allow a project to proceed and a mine to enjoy a quiet relationship with its neighbors, the higher level is more beneficial for all concerned, including the industry as a whole.

On occasion, the social license can transcend approval when a substantial portion of the community and other stake-holders incorporate the mine or project into their collective identity. At this level of relationship, it is not uncommon for the community to become advocates or defenders of the mine or project since they consider themselves to be co-owners and emotionally vested in the future of the mine or project.

EXAMPLES FROM REAL COMMUNITIESIn the spring of 2008, a tourist traveling across southern British Columbia, Canada, checked into a motel in the com-munity of Trail and chatted with the receptionist. As part of the exchange, the receptionist mentioned how excited she was about “our” new project. Thinking this to be some improve-ment to the motel, the visitor asked for more information and was interested to learn that the new project had captured the 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

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to recover recyclable scrap metals at the nearby Teck Cominco smelter. Clearly, the receptionist and her neighbors had very positive feelings toward the project, the company, and the smelter; they not only approved of it, they identified with it, and in their collective minds the project was fully “licensed” to go ahead.

The same type of community identification with a com-pany’s operations can be found in small cities and towns throughout the world. In the information economy, San José, California, United States, and the surrounding vicinity identi-fies itself with the high-tech industry, dubbing itself “Silicon Valley.” With this level of support, community and private sector organizations see their interests as highly aligned, both politically and economically.

PROBLEMS OF INTERPRETATIONThe concept of an informal social license is comfortably com-patible with legal norms in countries that operate under the principles of common law. However, the concept runs into dif-ficulties in countries such as those in Latin America that oper-ate under the principles of civil law, whereby only an official authority can grant a license. As a consequence, while com-munities and civil society are eager to see the social license in terms of a dynamic, ongoing relationship between the com-pany and its stakeholders, regulators (and in turn many com-panies) see the license in terms of a formal permission linked to specific tasks and events in which the regulator plays the central role in granting the license.

In parallel with the above, there have been attempts in Canada and the United States to link the social license to specific tasks, and also to reformulate the concept as some-thing that is established by the company and, once gained, becomes permanent. For example, Shepard (2008), suggests that the social license be defined as “a comprehensive and thoroughly documented process to have local stakeholders and other vested interests identify their values and beliefs as they participate in scoping the environmental impact assess-ment and in identifying alternative plans of operation for the project.” (Notably this does not stipulate that the community, stakeholders, and other groups accept, approve, or support the project).

Neither of these capture the vision of the social license as being dynamic, granted by the community (or at the higher level, society in general), descriptive of the quality of the relationship between company and stakeholders, or involving the reputation of the company and hence industry. Moreover, the words to operate are sometimes confused with the strictly operational phase of a mine’s life cycle when ore is extracted for processing. A better sense of the term to operate is to con-tinue the project, no matter where in the mine life cycle, from the initiation of exploration through to closure.

COMPARISON WITH OTHER FORMS OF CONSULTATION AND CONSENTFPIC is the acronym used to describe free, prior, and informed consultation and free, prior, and informed consent. Both involve close interactions with communities around resource development projects and have become critical issues for the mining industry. Superficially, there appears to be much in common between a social license and FPIC. From an opera-tional perspective, however, while there is convergence, there are also significant differences between them, with FPIC limited in scope and time to gaining permission to enter land

and/or initiate a mining project. More specific definitions can clarify the distinctions.

The free, prior, and informed consultation version of FPIC is perhaps best expressed in the Performance Standards on Social and Environmental Sustainability of the International Finance Corporation (IFC), although it is widely incorporated into national regulations for environmental impact assessment and the permitting of mining projects. In the IFC performance standards, free, prior, and informed consultation is defined as “an obligation of private sector project proponents to engage with project affected populations in a process of consultation that is ‘Free’ (free of intimidation or coercion), ‘Prior’ (timely disclosure of information—in effect before any decision is made), and ‘Informed’ (relevant, understandable, and acces-sible information)” (IFC 2006). Guidelines accompanying the IFC standards indicate that the process of FPIC should lead to “broad community support,” an aspect that is substantially similar to gaining a social license. However, the FPIC process is a specific action or series of actions limited to the period before a one-time decision is taken about a project and focuses on application to the provision of information about a project and its potential consequences.

The free, prior, and informed consent version of FPIC is rooted in two international instruments: the International Labour Organization (ILO) Convention 169, also known as ILO 169, and the United Nations Declaration on the Rights of Indigenous Peoples, or UNDRIP (ILO 1989; UNGA 2007). It is important to note that these instruments are directed to governments, not the private sector, and are limited to inter-actions with indigenous and tribal peoples. Nevertheless, they are of concern to the private sector because companies are typically the advocates for development projects and frequently introduce the idea of a mining project before any such discussion has taken place between government and the indigenous people. Therefore, as the initiators, companies should take care that discussions with indigenous communi-ties do not proceed ahead of consultation between govern-ment and the indigenous people, neither in the timing nor direction of the content.

ILO 169, which has been adopted by 20 nations (the majority in Latin America), requires governments to “con-sult the peoples concerned…whenever consideration is being given to legislative or administrative measures which may affect them directly;…establish means by which these peo-ples can freely participate…at all levels of decision-making”; and stipulates that “the consultations…shall be undertaken, in good faith…with the objective of achieving agreement or consent to the proposed measures” (Article 6). With respect to mineral resources and mining projects, ILO 169 is quite specific in requiring governments to consult indigenous and tribal people “with a view to ascertaining whether and to what degree their interests would be prejudiced, before undertaking or permitting any programs for the exploration or exploitation of such resources pertaining to their lands” (Article 15).

UNDRIP includes a much stronger statement on free, prior, and informed consent in requiring governments to “con-sult and cooperate in good faith with the indigenous peoples concerned through their own representative institutions in order to obtain their free and informed consent prior to the approval of any project affecting their lands or territories and other resources, particularly in connection with the develop-ment, utilization or exploitation of mineral, water or other resources” (Article 32.2).

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In summary, FPIC is limited in scope and timing to a period before exploration or development can take place, is linked to a one-time decision-making process, and, in the case of ILO 169 and UNDRIP, is an obligation of governments. In contrast, the social license to operate is an expression of the quality of the relationship between a private sector project/company and its neighbors. In terms of mining, this begins with first contact at the initiation of exploration and contin-ues through the entire life of a project, which, if successful, includes mine construction, mine operation, closure, and increasingly into postclosure.

WHO GETS SOCIAL LICENSE AND WHO GRANTS ITA social license is usually granted on a site-specific basis. Hence a company may have a social license for one mine or operation, but not for another. Usually the company has to have an operation that affects other groups, organizations, or aggregates of individuals. The bigger the effects, the more dif-ficult it becomes to get the social license. For example, an independent Web-site designer working from a computer in his bedroom will normally get an automatic social license in most communities. A mining company wanting to relocate an entire village faces a much bigger challenge.

The license is granted by the community, a term used generically throughout this chapter to describe the network of stakeholders that share a common interest in a min-ing or exploration project and make up the granting entity. Identifying that the entity is a network makes salient the par-ticipation of individuals, groups, or organizations that might not necessarily be part of a geographic community, and rec-ognizes the reality that communities are inherently heteroge-neous. Calling them stakeholders means the network includes individuals, groups, and organizations that are either affected by the operation or that can affect the operation. For example, ranchers who would have to accept a land swap involving part of their pastureland would be affected by a proposed mining operation, without having much effect on it, provided they accepted the deal. By contrast, a paramilitary group of insurgents or an international environmental group that might attack the mine site, each in their own way, would affect the operation, without being affected much by it. They would be stakeholders too.

Use of the terms community and stakeholder network implies that the license is not granted by a single group or organization. It is a collective approval granted by a network of groups and individuals. Therefore, the existence of a hand-ful of supporters amid a larger network of opponents would mean that the license has not been granted.

The requirement that the license be a sentiment shared across a network of groups and individuals introduces con-siderable complexity into the process. It invites the question about whether a coherent community or stakeholder network even exists. If one exists, how capable is it of reaching a con-sensus? What are the prerequisites a community must have before it becomes politically capable of granting a social license? These complexities make it more difficult to know when a social license has truly been earned. The complexities of the granting process are discussed later in this chapter.

COMPONENTS OF THE SOCIAL LICENSEAccumulated experience supports the proposition made by Thomson and Joyce (2008) that the normative components of the social license comprise the community/stakeholder

perceptions of the legitimacy and credibility of the mine or project and the presence or absence of true trust. These ele-ments are acquired sequentially and are cumulative in build-ing toward the social license. The mine or project must be seen as legitimate before credibility is of value in the relationship, and both must be in place before meaningful trust can develop.

THE BUSINESS CASE FOR INVESTING IN ITEarning a social license to operate plays havoc with financial and engineering schedules. It involves a fuzzy relationship-building process that does not fit comfortably into technical planning frameworks that are built around concepts like material objec-tives, deadlines, and deliverables. So, why is this necessary?

The same question could be asked about safety. Doing safety training does not seem to directly contribute to the bottom line, so why bother? Several decades ago, health and safety was viewed in the same way that many people view social responsibility today. It was the responsibility of a spe-cialist in the company. Accidents were accepted as the aspect of the job that justified higher pay. Today, safety is everyone’s responsibility. The leading companies have systems in place to identify dangerous situations so that accidents can be pre-vented before they happen. The same will eventually be true for the social license. The leading companies will establish positive stakeholder relations before complaints and con-troversies erupt. Seeing the earning of a social license as an essential part of the project requires a higher-level perspective that is usually only the concern of executives and members of the board. However, project planners need to understand this bigger picture too, in order to allocate sufficient time and resources to earning a social license. The next two sections deal with this bigger picture.

Dependence on Resources Controlled by StakeholdersIt is an axiom of the mining industry that mines are made where mineral deposits are found. This truism reflects the fact that economically viable mineral deposits occur in relatively rare situations. As a result, the mining company has to adapt to the location of the deposit and engage with the people who live there and who consider the location part of their “back-yard.” By way of contrast, manufacturing industries can select the location for a new plant or facility based on a variety of factors, including the willingness of the local community to accept them. Indeed, during the first part of the decade, there was open competition between communities in North America to host new manufacturing and assembly plants and wholesale distribution depots.

Mineral deposits always have neighbors. Sometimes they have a village right on top of them. Roads always go through someone’s land or affect someone’s traffic or hunt-ing ground or watershed. Even the most remote mines have to rely on the closest towns as supply centers and transporta-tion links. The many ways that mines affect their neighbors make those neighbors stakeholders. However, the effects go in the opposite direction too. The mine can be affected by road closures, road use regulations, water rights negotiations, pro-tests, blockades, and many other tactics that restrict access to essential resources. Even with the legal right to mine from a government, a company can still be stopped by a commu-nity determined to withhold the social license to operate. For example, in Peru alone, at the time of this writing, there were more than 80 sites where communities had prevented mining companies from exploring or exploiting mineral deposits.


The management theory that covers this type of chal-lenge is called the resource dependence view of competitive advantage and the firm (Barney et al. 2001 provide a review). It explains why some companies thrived while others strug-gled. The theory emphasizes that companies need good rela-tionships with those who control essential resources that are scarce, non-substitutable, or imperfectly imitable. That can include things like labor skills, some materials, risk financing, access to some markets, special legal permits, and, for mining, access to land and mineral deposits.

The Role of StrategyFigure 17.2-1, shows the resource-dependence view aug-mented with acknowledgment of the role of strategy in set-ting priorities among resources. The chosen strategy (box 1) determines which resource-controlling stakeholder (box 2) must be dealt with. At the same time, because strategy is often based on existing strengths, the stakeholders the company can deal with best or worst influence what strategy will be chosen. Together, these factors identify the stakeholders with whom the company must engage (box 3).

Different Strategies at Different Stages of the Mine Life CycleCompanies have different strategies for financial success at different stages in the life cycle of a mine. In the earlier stages of exploration and feasibility, the strategy is to buy the rights inexpensively, prove the richness of the deposit, and sell the property to a mine operating company. The financial

gain depends on demonstrating the quality of the ore deposit (grade, tons, mineralogy, feasibility, etc.) and finding a moti-vated buyer who has the capital and knowledge needed to develop the property into an operating mine.

In the later stages, operating companies pursue a strategy of getting the property into production as quickly as possible in order to reap the financial rewards of selling the minerals from the site. Financial gain depends much more directly on the prices that mineral processors and industrial manufactur-ers are willing to pay for metals.

Mine builders want to buy properties that are fully per-mitted. They avoid properties at which stakeholders threaten to block construction or access to the deposits or other vital resources (e.g., water, power). Unfortunately, too many explo-ration companies think they can ignore or hide these kinds of stakeholder problems.

For example, from late 2003 to late 2004, the stock price for Monterrico Metals, a mineral exploration company, rose from around 150 to 600 pence per share on the London Stock Exchange. Drilling results had shown that the company had a world-class copper deposit at its Rio Blanco property in northern Peru, and the company was actively seeking a buyer to develop a mine. During 2005 and 2006, however, local peasants demonstrated against the development. A group of academics and British parliamentarians known as the Peru Support Group went to Rio Blanco to investigate. Their find-ings noted a permitting dispute between two Peruvian govern-ment bodies and, more particularly, widespread community

1. Company’sStrategy

3. Company’s Motivation to Engage Stakeholders 4. Relationship DevelopmentThrough Building Social Capital

Low Social Capital

Medium Social Capital

High Social Capital

5. Legitimacy

6. Credibility

7. Full Trust

(Psychological)Co-Ownership

of Project

Acceptance of Project

8. Probability of Attainment of Strategic Goals9. Situational Appropriateness

of Firm StrategyMedium HighLow

Approval of Project

2. Dependence on Stakeholdersfor Strategic Resources

Figure 17.2-1 Adaptation of resource-based view to include process of gaining a social license to operate


opposition (Bebbington et al. 2007). The news of the appar-ent absence of a social license was followed by fall in share prices with their value ultimately dropping almost 70%. In early 2007, a Chinese mining company bought control of the company amid complaints from some Monterrico investors about the low price being paid. At the time of this writing, the project continues to be mired in conflict and there is no indication that a mine can be developed in the near future. In retrospect, the Monterrico investors should be satisfied with the price paid by the Chinese, but they have also learned the hard way that a social license to operate has a financial value when a buyer is sought to develop the property.

Identifying Stakeholders Based on StrategyBoxes 1 and 2 in Figure 17.2-1 cover the criteria for identify-ing stakeholders. Those who will be affected by the company are implicated by the company’s strategy (box 1). Those who have the potential to affect the company are covered by the company’s dependence on others for resources (box 2). The combined set represents the stakeholders with whom the com-pany should establish relationships.

When an exploration team determines that there is an interesting deposit, the activities in the first three boxes tran-spire. The team must identify by name local stakeholders who make up the community and then determine who speaks for each stakeholder group as an opinion leader in relation to the project. When the exploration team first introduces itself to those stakeholders, the social capital in the firm-stakeholder relationship is very low (box 4). The social capital dimension of stakeholder engagement and relationship is explored later in this chapter. For now it is sufficient to think of social capital as the collaborative capacity in the relationship.

The pivotal role of relationship building (box 4) implies that a policy aimed at keeping a low profile raises the socio-political risks associated with the project. This is especially true during the earlier stages of the project. If the company does not engage with all elements of the community, there is no way the community can collectively grant a social license. If relationship development is delayed, the social license will also be delayed, usually at a high financial cost to the com-pany. Thus, anyone who argues that there is no time for a lengthy relationship-building process with the community is unwittingly advocating for lengthy delays to be imposed by the community.

Building Social Capital and Earning Higher Levels of Social LicenseEngagement entails the building of a relationship with the stakeholders, who are often already organized into a geo-graphically based network (the community). If the relationship proceeds well, the community may view the company as legiti-mate (box 5 in Figure 17.2-1) and may grant a provisional/conditional social license (gray box, “acceptance of project”).

Acceptance of the project can heighten the company’s motivation to engage with the stakeholders, provided the com-pany realizes that this is an investment in raising the probabil-ity that corporate strategic goals will be attained. Because not all companies realize this, the line feeding back to a company’s motivation (box 3) may be dashed. Assuming the company does choose to build more social capital in the relationship, the community will come to see the company as credible (box 6). Consequently, it will grant full approval of the project (gray

box, “approval of project”). Ideally, the relationships should evolve to this point before the company embarks on the feasi-bility and permitting stages of a project.

Probabilities of SuccessIf the company continues to put effort into the relationship (dashed line to the left in Figure 17.2-1), it can raise the prob-ability of realizing its strategy and lower the inverse probabil-ity of sociopolitical risk. Taking the relationship to the level of full trust (box 7) yields exponentially more benefits for the project and the parent company. At that point, the social license reaches the level of “psychological co-ownership.” This will result in the success of the project, provided that the company chose a winning strategy in the first place. Outside factors, however, like the price of metals, can always stop a project (box 9).

Figure 17.2-2 shows how the process of earning a social license to operate impacts a company’s bottom line. No access means “red ink.” Good access makes “black ink” possible, provided all other aspects of the project are positive. Although the relationship-building process might sound at first like a nonessential nicety, it is in fact a make-or-break factor for the successful development of a project. Every continent has its “off limits” mineral deposits that represent projects which failed at the relationship-building stage.

Dynamics of Stakeholder Influence in NetworksSome stakeholders have legal powers to affect the company. Governments, for example, can often act unilaterally to impose conditions or restrictions on mining activities. Most stakeholders, however, have their effects through political maneuvering. Some have direct control over the resources the company needs. They can exert influence by restricting access to those resources through tactics like prohibitive pricing, blockades, and boycotts.

Still other stakeholders have no legal power and no direct control over essential resources. They can, nonetheless, form alliances that pressure those with such direct power to act in solidarity with them. Environmental and human rights groups, for example, usually fall into this category. They often use tac-tics such as putting pressure on senior governments to change mining regulations or on municipal governments to withhold resource access (e.g., water) or on consumers to boycott the product (e.g., the blood diamonds campaign).

Because political alliances among stakeholders often determine their level of influence, it is important to know about those networks in order to identify the stakeholders who deserve more attention. Methods for acquiring this kind of information are discussed later in this chapter. For the moment, it is simply important to recognize that the socio-political dynamics in the stakeholder network do affect the project’s support among stakeholders. Thus, acquiring a social license to operate is partially a sociopolitical task.

Resource Access Restriction at the Corporate LevelStakeholders can also have influence over a project in less direct ways. For example, they can exert pressure through control of access to local resources; they can also affect access to the resources that the parent company needs. The local proj-ect may or may not be constituted as a subsidiary company of a larger company. In any case, the “parent(s)” sponsoring the project also needs resources. These include equity or debt


financing, new highly trained employees, access to minerals at other sites in the future, and willing customers.

Stakeholders sometimes restrict the parent company’s access to those resources by launching national or interna-tional campaigns that damage the company’s reputation. The effect on share value, for instance, can restrict access to equity financing, which is particularly damaging to junior exploration companies, but can also affect operating compa-nies. A company with a negative reputation will also have more trouble attracting talented employees. If the interna-tional campaign includes a consumer boycott (e.g., the dirty gold campaign), the pool of willing customers will shrink and income could be depressed. A bad reputation in community relations can also limit the number of sites a company can have access to in the future, no matter whether they are green-field sites or acquisitions.

At the international level, the absence of a world govern-ment 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 frequently finance mining projects, including the IFC and the banks that have adopted the Equator Principles (EPFIs 2006) as criteria for project financing. They stand ready to legitimize the complaints of local stakeholders and impose a variety of sanctions against the offending company. Again, these affect the parent company’s reputation and access to money, talent, willing customers, and even further national legal permits.

In summary, earning a social license to operate is neces-sary for protecting the financial viability of the project and the company. It is as deserving of time, money, and career pres-tige as drilling to estimate ore reserves or preparing quarterly financial statements.

PHASES OF EARNING A SOCIAL LICENSEA social license has distinguishable levels. At the same time, the process of moving from one level to another can be thought of as a smooth gradient of continuous relationship improve-ment through increasing social capital.

Figure 17.2-2 shows the four levels of social license and the three boundary criteria that separate them. The lev-els represent how the community treats the company. The boundary criteria represent how the community views the company, mostly based on the company’s behavior. These transition criteria were derived from language repeatedly heard from communities themselves. Although the terms legitimacy, credibility, and trust emerged out of years of conversations while consulting with mining communities, social science and management literature has been shown to support these common-sense views.

The levels and boundary criteria are arranged in a hierar-chy. It is possible to go both up and down the hierarchy. For example, if a company loses credibility, approval will be with-drawn and the project will hobble along on acceptance only. If a company loses legitimacy, the project will be shut down. If full trust is gained, the community will support and protect the project as its own.

Withholding/Withdrawal LevelStarting from the base, the rejection level of a social license is the worst-case scenario. This is when the community stops progress on the project. Many mineral deposits cannot be exploited because the community does not grant any level of social license to proceed.

The withholding/withdrawal level is shown as narrower than the acceptance level above it in order to symbolize the possibility that, globally, more projects are accepted than rejected. However, at present, this is a supposition. The empir-ical studies to determine the correct width of each level in Figure 17.2-2 have yet to be done.

Legitimacy Boundary CriterionThe academic meaning of the term legitimacy is evolving as interest grows in how organizations gain or lose it, and what they can do with it once they have it (Deephouse and Suchman 2008 provide a review). Knoke (1985) defines legitimacy in the context of stakeholders and politics as “the acceptance by the general public and by relevant elite organizations of an association’s right to exist and to pursue its affairs in its cho-sen manner.” This adequately summarizes the bare minimum of legitimacy even when the company has no social license. Suchman (1995) offered a typology in his definition, which has become a touchstone for scholarship on legitimacy. He proposed a three-category typology of “legitimacies.” They were (1) pragmatic, based on audience self-interest; (2) moral, based on normative approval; and (3) cognitive, based on comprehensibility and taken-for-grantedness. Each of these has aspects that continue to be important through higher lev-els of social license. For each type, the community asks itself questions such as the following:

• What do they want, and what is in it for us? How will the consequences of their actions affect us? How will the project affect the environmental resources we absolutely depend on for survival? If we cannot know that for sure, then can we at least discern whether they will be respon-sive to our concerns, or even share decision making with us? (Pragmatic legitimacy)

• Does anyone in authority recognize/respect us? Are they conforming to our social, cultural, or political norms? Have they followed the specific norms for approaching us with their proposal? Will the consequences of their

Co-Ownership

Full Trust Boundary

Approval

Credibility Boundary

Acceptance

Legitimacy Boundary

Withholding/Withdrawal

Figure 17.2-2 Levels of social license with boundary criteria between them


activity promote the general welfare of the community, according to our (i.e., the community’s) own values? (Moral legitimacy)

• Does what they say make sense, or is it confusing or strange? Has this been done anywhere else? Are their proposals routine practice, or is this uncharted territory? Does that company have the capacity to do what they say they could do? In the case of an expansion of an exist-ing operation, it is precisely the absence of questioning that indicates cognitive legitimacy. This occurs when the presence of the company and its activities are already taken for granted. They are seen as an inevitable part of the community economy. (Cognitive legitimacy)

In addition, particularly for mining exploration projects, the community may also ask questions about legal legitimacy. Do they have the legal permits and permission to do what they want to do?

The behaviors that lead to a company’s gaining legiti-macy are associated with spreading awareness about the company and what it does, listening to community concerns, and following the official and unofficial local norms, cus-toms, and practices. The company should also have legal status nationally, inform the general public about how the proposed approach has worked for the benefit of other com-munities elsewhere, and solicit participation in planning and decision making in order to allay fears about the company implementing an arbitrary, uninformed, or high-handed development process.

Failure to engage all segments of the community (e.g., young, old, men, women), to inform them and to solicit their opinions, is often seen as evidence of illegitimacy by those excluded. It is normally important to communicate directly with the bases and not rely solely on leaders. At the same time, following local norms and protocols requires an under-standing of, respect for, and use of local social structures and decision-making processes.

Acceptance LevelWhen legitimacy is established, the community response is that they will listen to the company and consider its propos-als. If, by their own standards, they have no reason to doubt the company’s credibility, they may allow the project to tenta-tively proceed. This constitutes the acceptance level of social license. It is a minimal objective for any company.

As can be seen in Figure 17.2-2, the acceptance level is bounded by the legitimacy criterion and the credibility crite-rion. This represents how acceptance requires that the compa-ny’s legitimacy must be firmly established and its credibility should at least not be damaged.

Credibility Boundary CriterionCredibility is the foundation of trust. When a company is regarded as credible, it is seen as following through on prom-ises and dealing honestly with everyone. There is little danger of the company saying one thing one year and a different thing the next. Moreover, the company’s policies are the same for everyone that it deals with.

The promise-keeping aspect of credibility is related to the company’s responsiveness to community concerns and requests. Legitimacy can be earned by just listening; cred-ibility requires doing something about what has been heard.

Community members need to see action following their discussions.

An essential component of credibility comes from open-ness and transparency in the provision of information and decision making that demonstrates the company to be consis-tent in the way it treats different groups. Alternatively, trans-parency reveals the principles that determine why one group might be treated differently than another, reducing the risk of feelings of discrimination or marginalization.

The community asks itself questions such as these:

• Will they deliver on their promises? Are they living up to their responsibilities? Are they acting yet on what we have already said concerns us? Do their promises sound unrealistic?

• Do we understand why they treat some groups differently and how that is consistent behavior?

• Are they keeping any secrets? Do they avoid contact or avoid answering certain questions? Do they acknowledge difficulties or do they often sound glib?

Establishing credibility involves the cycle of listening to the community, responding with information and propos-als, and implementing approved proposals. Demonstrations of responsiveness and principled action on a number of quick, short-cycle initiatives help to build a reputation for credibility in the early stages. There is pressure to show immediate ben-efits, as opposed to long-term promises. The planning horizons in rural communities seldom reach beyond one agricultural cycle. By contrast, exploration teams may make promises to be fulfilled by the future buyers of their properties.

In communities, credibility rests in a person’s willingness to keep one’s word. This is a significant challenge for the cred-ibility of an exploration company that does not expect to be around when its promises are to be fulfilled. Many communi-ties are suspicious of anyone who intends to transfer respon-sibility for stated promises to some unspecified, hypothetical person who may or may not even appear in the intangible mar-ketplace for mineral deposits.

To earn credibility, the company should make and keep short-term promises. This is best done by using participatory processes to identify community priorities that the company can help make real. It helps to bring in third parties to verify the truth of company statements and to empower the com-munity to be the watchdog on the company’s activities (e.g., community-based environmental committees). Formal agree-ments and contracts give structure; manage expectations; avoid misunderstandings; and define rules, roles, and responsibilities. Providing false or incomplete information or failing to deliver on promises will quickly destroy credibility and lead to ques-tions as to whether the company is even legitimate. Acceptance can be rapidly withdrawn.

Because companies usually carry so much economic clout, they are often expected to provide the kinds of services that are provided by the government in the developed world (e.g., education and health care). In contexts where govern-ments have not provided these, a company’s reluctance to talk about them may be taken as a sign that the company cannot be trusted to make an effort around basic community needs. The best way to address these expectations is with programs to help governments develop the capacity to shoulder such responsibilities. This shows a concern for the problems and a respect for local institutions. It avoids the trap that occurs


when governments decide they do not need to do anything because the company is taking care of the community.

Even when relations with the community are good, there may still be attacks on the credibility of exploration compa-nies from civil society sources that warn about the broken promises or social or environmental problems experienced by other communities that accepted mines. Even if some of these stories are false or exaggerated, the sources are credible because they do not appear on the surface to have anything to gain from misrepresenting the facts. When it is their word against a company’s word, the company appears to have the greater motive to distort the truth.

Approval LevelWhen a company has established both legitimacy and cred-ibility, a community is likely to grant approval of the project. This means the company has secure access to the resources it needs. The community regards the project favorably and is pleased with it. The community is now resistant to the “us-versus-them” rhetoric of antimining groups.

This level of social license represents the absence of sociopolitical risk. However, it is really only at the thresh-old of opportunity. Moving toward the top of this level, as represented in Figure 17.2-2, a company can begin to reap some positive benefit from their relationship building, such as strong community support for expansion of operations.

Full-Trust Boundary CriterionIn management research, trust has been shown to be impor-tant in relationships between and within organizations. It is just as important in relationships between organizations and stakeholders. Trust is especially important when bridging the boundary between businesses and civic sector organizations, which include many community groups.

Many typologies of trust have been proposed, some of which range from weak or superficial trust to deeper, more comprehensive trust. As used here, the term full trust means a broader and deeper trust.

Credibility is a basic level of trust related to honesty and reliability. A full trust relationship is one where there is a will-ingness to be vulnerable to the actions of others. Communities that have a full level of trust in a company believe that the company will always act in the community’s best interests. Before moving to that level of trust, a community asks itself questions such as these:

• Have they fulfilled their promises repeatedly and consistently?

• Did they handle the unexpected problems in a way that showed they had our best interests at heart?

• Did they share power in a partnership approach?

In order to gain full trust, a company has to go beyond fulfilling its promises to jointly envisioning new development goals with the community. The company will have initiated activities to strengthen the community’s ability to plan and achieve its goals for the future. For example, this can involve training in project management for local nongovernmental organizations (NGOs) or technical training for government employees. The company has managed to explain its decision-making principles to the degree that people accept rejection of proposals calmly because they trust the decision makers.

When fulfillment of a promise will be delayed, the com-pany explains why and asks the community for ideas about

how to overcome the obstacles to fulfillment. Whenever pos-sible, the company involves community groups in decision making to ensure that no opportunity for capacity building and economic development is missed. The company hands over responsibility for specific aspects of the project to the com-munity so that it takes ownership of both the opportunities and the risks.

Trust is the much desired quality in a relationship that is only earned over time and typically emerges as the product of shared experiences that have positive outcomes for all parties. Trust is hard to earn, easy to lose, and very difficult to recover once lost.

Co-Ownership LevelWhen the community sees the company as having full trust in it, the community takes responsibility for the project’s suc-cess. Psychologically, both parties come to view it as a co-ownership arrangement. The limits of the responsibilities of each party are clear, as are ultimate decision criteria.

At this co-ownership level of social license, the company becomes an insider in the community social network. In social sciences, social identity theory describes this level of relation-ship as the dissolution of the us–them boundary (Williams 2001). Working closely together, the company and community often develop creative solutions to all types of challenges. If outside stakeholders, like the national government or an inter-national NGO, move against the interests of the company, the community will mount a campaign in defense of the company. There have been cases where community members have trav-eled to foreign countries to challenge false information being promoted by NGO critics. In another case, community mem-bers marched on the national capital to make a point to politi-cians who were proposing a new tax that would affect the mine.

Few companies have taken their community relations to the co-ownership level. Many have difficulty seeing beyond the immediate transactions to the much greater benefits of establishing strong collaborative relationships. Nonetheless, as awareness of the potential benefits grows, more companies are attempting to win a higher level of social license.

MINE LIFE CYCLE AND FIRST IMPRESSIONSThe level of social license that a company enjoys can fluctu-ate throughout the life cycle of a project. Figure 17.2-3 shows the six stages of the mine life cycle: (1) exploration, (2) fea-sibility, (3) construction, (4) operation, (5) closure, and (6) postclosure. Obviously, the earning of an initial social license to operate has to be complete before construction begins (stage 3). However, in the past many companies have treated it as an afterthought sometime during the feasibility stage (2). Experience shows that ignoring the social license matter dur-ing exploration only creates problems in later stages.

In the first two stages, the key issue affecting the social license is access to land for exploration and feasibility stud-ies. The exploration stage is especially important because that is when first impressions are made. It is a challenging period that can affect community relations during the whole mine life cycle. A positive relationship can lead to the early acqui-sition of a social license. If that is maintained, it can create the tolerance and mutual understanding needed to deal with conflicts and different interests during the whole life of the mine. Conversely, bad relationships during exploration can lead to social tensions, conflict, and premature shutdown of the project.


A DIFFERENT STARTING POINT IN EVERY COMMUNITYFirst impressions are important, but the preexisting disposi-tion to trust also matters. Some societies are less trusting than others. Figure 17.2-4 shows percentages of generalized trust by population in selected countries from a survey by Delhey and Newton (2005). Obviously, earning a social license in Brazil would be much more difficult than in Norway. The reasons for these differences are not entirely clear, but there are suggestions that lower trust of people in general might be associated with fractionalization in terms of income inequality and political diversity and with higher levels of commitment to family, as opposed to the collective society.

In addition to these cultural factors, each community has its own history. Some have had negative experiences with pre-vious operators of a mine or exploration project. Some have had bad experiences of a more general nature, such as exploi-tation by foreign companies or governments during colonial times. In many developing countries, there is still suspicion of corporations from developed countries as a result of the Third World debt crisis that followed World Bank policies aimed at encouraging developing countries to imitate rich countries.

All of these factors affect how long it will take to earn a social license in any particular community. Just because it took 18 months to earn enough of a social license to buy land in one community, it cannot be assumed that the next commu-nity will require the same amount of time.

DIFFERENT CULTURES, DIFFERENT EXPECTATIONSThere are profound cultural differences between corporations and communities, especially communities that are rural and operate at subsistence level. Companies tend to expect com-munities to be coherent, cohesive, rational economic actors with a keen sense of judicial impartiality regarding the issu-ing or revoking of a social license. However, cultural differ-ences can radically redefine the meaning of these qualities. The community’s perceptions are filtered through their world view. For example, the Dongria Kondh tribe, in the state of Orissa, India, consider their mountain sacred and view the bauxite mining proposal by Vedanta Resources as an assault on all that is good and holy (Survival International 2008). In

these cases, the company must decide if it should withdraw, and avoid the risk of conflict, or invest in working with the community and other stakeholders over a longer period with the hope that a creative compromise can be found.

Many rural communities work on the tribal principles of personal authority and obligations to relatives. Such com-munities may see profit making as proper for the benefit of a family or community but improper for the benefit of any other body, from individual to company to state. In these societ-ies, all companies, except family and community-owned busi-nesses, start out as morally illegitimate because of the way they treat money and resources.

In many rural communities, nepotism is seen as com-mendable, not condemnable. Being seen as legitimate entails a willingness to treat community members like family. The company is expected to hire on the basis of local residence, rather than qualifications. Becoming qualified is seen as some-thing that comes after being hired, rather than before.

Time is a common point of difference. Companies want things to happen according to a firm schedule, usually related to a budget. Communities, on the other hand, react organi-cally, take time to reach decisions, and typically have no con-cern for the schedule set by the company.

THE LOW-PROFILE FALLACYEarning a social license is complicated work. Occasionally companies are tempted to opt for a strategy that seems easier. They decide to keep a low profile or “stick to their knitting,” especially in the exploration stage. This, of course, makes establishing legitimacy, credibility, and full trust quite impos-sible. The following anecdote describes the consequences.

In July 2002, Meridian Gold, Inc., completed its acquisition of Brancote Holdings and took posses-sion of the Esquel gold deposit, an exploration proj-ect located in the Cordón de Esquel in northwestern Chubut, Argentina. At the time, the concept of devel-oping a mine at the Esquel gold deposit enjoyed gen-eral acceptance in the nearby town of Esquel as a result of successful efforts by Brancote to develop a positive relationship with the community. However,

Typically 1–3 years

SuspensionTermination

(Often Repeated)Temporary

Closure

Exploration

1–10 years

Detailed SiteInvestigation,Design, andEstimating for

Closure

Construction Operation

2–100 yearsProgressive

Rehabilitation

Final Closure andDecommissioning

1–5 years

Postclosure

In Perpetuity

1 2 3 4

SuspensionTermination

2A

4A

5 6

1A

Source: Adapted from Gadsby and Hodge 2003.Figure 17.2-3 Stages of the mine life cycle


popular sentiment changed very quickly as Meridian failed to respond to requests for information and assis-tance, and as local permitting authorities expressed a lack of confidence in the company and its actions. Over the following months, the situation became more polarized with the formation of community-based groups organized to seek information and clarification from the company on various issues. In the absence of replies that satisfied these community groups, an organized opposition to the idea of a mine formed in the town. Various protests, marches, and meetings took place with a common theme of “No to the Mine.” Attempts to reach a solution through dia-logue led by the Church failed to gain any momentum and, under increasing pressure from the local popu-lation and growing national and international opposi-tion to the project, the mayor of Esquel authorized a plebiscite on the future of the proposed mine develop-ment. On March 23, 2003, the population of Esquel voted 81% (of a 75% turnout) against the mine. In a subsequent independent investigation by Business for Social Responsibility (2003a), it was noted that the Esquel gold mine project was characterized by a lack of engagement by Meridian with the community. This lack of engagement and the inability to have a mean-ingful dialogue about potential risks (and benefits) was the dominant factor influencing the community not to support the mine. In practice, the company did not provide timely and useful information, and on occa-sion made it difficult to obtain information, for exam-ple when the company refused to provide copies of the environmental impact study, a public document, avail-able in CD format. What community members wanted was to feel informed and listened to, to participate in a real dialogue, and for the company to be responsive to their concerns. In short, the community wanted a part-nership, something that the company never attempted to deliver (Business for Social Responsibility 2003a). The collapse of the Esquel project was financially disastrous for Meridian, with the company obliged to take a write-down of US$542.8 million. As of June 2009, the project remained frozen with a majority in the community firmly opposed to any form of mineral exploration or mine development.

Such scenarios are becoming more frequent. They are not always caused by a failure to talk to the community stakehold-ers. In most of these types of cases, the exploration teams have held community meetings. They have explained their plans. The community representatives showed approval for the proj-ects. So what went wrong? Why do things so often fall apart?

Practical experience points to a number of problems cre-ated by the exploration team themselves. The most common problems are as follows:

• A failure to invest fully in relationship building, an approach generally justified by the knowledge that most exploration projects fail. Explorers often choose to delay full engage-ment with stakeholders until the “right moment” or when there is certainty that the project will go ahead.

• Selective engagement. Talking only to those who are already friendly toward the project creates a group

marginalized from information and participation that may well respond by rejecting the project.

• Undermining the company’s credibility by failing to deliver on promises already made or by providing false or incomplete information.

• Failing to understand the internal structure of the com-munity and existing relationships between stakeholders and thereby unwittingly creating or amplifying rivalries or divisions that lead to conflict.

• Failing to respect and listen to the community and relying on legal positions and permits to operate.

• Failing to maintain close contact with the community when there is a change in project management or owner-ship, thereby weakening the continuity needed to sustain the social license.

• Misunderstanding, usually overestimating, the quality of the relationship with the community by confusing accep-tance with approval, and cooperation with trust.

The last pitfall is particularly pernicious. Individuals and groups will cooperate with the company for many reasons, including courtesy, a desire for gain, a perception of having no alternative, or, as is often the case with authorities, a sense of obligation. Cooperation for these motives does not necessarily require a trusting relationship.

0 20 40

Percentage of Population Trusting Other People

60 80

Brazil

Turkey

Philippines

Peru

Macedonia

Colombia

South Africa

Slovenia

Argentina

Nigeria

Georgia

Romania

Chile

Ghana

France

Russia

Armenia

Mexico

Britain

Ukraine

United States

India

Germany

Australia

New Zealand

China

Canada

Sweden

Norway

Source: Data from Delhey and Newton 2005.Figure 17.2-4 Percentages of generalized trust for selected countries


MAINTAINING A SOCIAL LICENSEThe four-level-phase view of earning a social license is sim-plistic. It helps mark progress and breaks the process into a practical, phase-like approach. It also highlights important pit-falls. However, every community and stakeholder network is unique in some ways. There is no one-size-fits-all process for earning a social license. There is always a need to adapt and adjust to the specifics of each case. For that reason, it is also important to understand the theoretical process underlying the phases. Any necessary adjustments and adaptations can then be derived from first principles.

Continuous Building of Social CapitalThe movement from legitimacy through credibility to full trust is a process of building and balancing the social capital in the relationships between the company and the members of the network.

Definition of Social CapitalAdler and Kwon’s (2002) definition of social capital says, “Social capital is the goodwill available to individuals or groups. Its source lies in the structure and content of the actor’s social relations. Its effects flow from the information, influence, and solidarity it makes available to the actor.” In other words, the effects of social capital flow from what it is, namely, information, influence, and solidarity.

Examined more closely, social capital can be seen as a set of benefits that network members can enjoy because of their unique patterns of connections in a network. (In social network analysis, the technical terms for connections in a net-work is ties.) The benefits fall into three general categories. First, social capital is access to the information that flows through the network. People who act as bridges between oth-erwise unconnected clusters of network members are espe-cially likely to enjoy this type of benefit. They have “bridging” social capital. Second, social capital is solidarity in support of group norms and shared identity. For example, members of immigrant communities often stick together and police one another’s behavior for mutual protection and benefit. This is an aspect of “bonding” social capital. Third, social capital is influence in the network. Those who have a good balance of bridging and bonding often enjoy a greater capacity to solicit assistance and resources from others, whether it is for a socio-political purpose or a more personal goal.

Sources of Social CapitalAdler and Kwon (2002) say the source of social capital is in the structure and content of the social relations of network members. The structure refers to the network pattern—a bridging or bonding pattern, for example. The content refers to qualities of the relationships between pairs of network actors. Adler and Kwon drew upon a set of distinctions proposed ear-lier by Nahapiet and Ghoshal (1998), who also identified a structural source of social capital, but divided the content into two distinct sources, the relational and the cognitive. The rela-tional source encompasses qualities like reciprocity, mutual trust, and shared identity. The cognitive source covers shared language, shared problem-solving paradigms, common strate-gies, and even shared goals and values.

By cultivating these three sources of social capital simul-taneously, a company can raise social capital in the commu-nity. Then it can “cash in” the social capital for a social license to proceed.

Tapping Sources of Social Capital Across the Phases

Developing the Structural Source of Social CapitalThe structural source of social capital deals mostly with the patterns of connections in a network. For example, many net-works have a core-periphery structure. The members at the core are well connected and influential. The peripheral mem-bers are more isolated with less access to resources. The struc-tural dimension also deals with the strength of each tie. In a community network, for example, the groups or individu-als with many weak ties will have access to a greater variety of information than others who have only a few strong ties. However, those with strong ties will be more capable of col-laborating with one another to get things done.

When company representatives first arrive in a remote community, they begin forming ties with the network of com-munity stakeholders. In the process of everyday transactions, they form very weak network ties with the hotel desk clerk, the restaurant owner, and the taxi driver. Since these people are all well embedded in the community, these ties represent bridges between the community network and the company’s internal network. The leftmost panel of Figure 17.2-5 shows one thin line going from the company (i.e., the solid circle) to one rather central member of the community network. This is meant to represent a bridging relationship between the com-pany and community. With nothing more than a weak bridging relationship in the community, the company is a peripheral member of the community network.

As the project proceeds, the company’s presence grows in terms of numbers of representatives and in numbers of con-tacts with community members. Some of these relationships deepen. The company goes from having bridge relationships, to actually being a semiperipheral member of the community network. At this point, the company may also have created enough trust (relational source of social capital) and under-standing (cognitive source of social capital) to be able to use its social capital to get an acceptance level of social license. The network structure would look something like the middle panel of Figure 17.2-5, where the original line representing the relationship formed in the leftmost panel becomes thicker in order to represent a stronger relationship.

The rightmost panel of Figure 17.2-5 shows the company as a member of the core of the community network. In this position it has considerable influence in the community and much more ready access to community-controlled resources. This would be a typical pattern for a company with an approval level of social license.

Developing the Relational Source of Social CapitalThe relational source of social capital includes related quali-ties of social interactions like reciprocity, shared identity, and trust.

Reciprocity. Reciprocity begins with the simplest of courtesies in polite interaction. In many cultures this quickly involves mutual gift giving. As relationships develop, it is most prominent as various kinds of mutuality, including mutual respect and mutual self-disclosure. Reciprocity shades into generalized trust when the parties forgo immediate advantages to themselves in favor of actions that support the long-term interests of the group or of the bilateral relationship. This shows reciprocity because it requires a faith that such sacrifices will be reciprocated by others. In this way, reciproc-ity contributes to the solidarity benefit of social capital.


Shared identity. Shared identity is important in pre-venting us–them dynamics from taking root. Members of stakeholder groups all share an identity by virtue of their membership in that group. Likewise, company representatives share an identity, especially in their roles as representatives. Two strategies can be used for avoiding intergroup conflict in such situations.

First, ties that cut across groups insulate members of each group from viewing members of the other group as “them.” Crosscutting links either bilateral relationships or group mem-berships (that include people from both the stakeholder group and the company). For example, some company employees and stakeholder group members might both attend the same church and participate cooperatively in events there.

The second strategy is to heighten the salience of group memberships that completely encompass both groups. For example, both stakeholder group members and company employees might be citizens of the same country. Appeals to nationalistic sentiments can dissolve intergroup rancor and focus people on their shared interests.

At the highest level of social license, psychological co-ownership, the community, and the company share an identity centered around the industry itself. This happens, for example, when a community starts describing itself as a “mining town.”

Trust. Trust is a very important aspect of the relational source of social capital. As Figure 17.2-5 shows, a company will start at different levels of trust even before any relation-ship begins. Early in relationships, trust is based more on calculations of risks and benefits and is limited to specific short-term transactions. Later on, trust comes to be based more on knowledge of the other party gained from experience over a period of time. Trust grows as the other party consistently keeps promises and demonstrably acts in the interests of the perceiver. This knowledge-based trust is important for gaining the acceptance level of social license. Companies can foster this kind of trust early by taking every opportunity to listen to the community and respond quickly (Svendsen et al. 2003).

Developing the Cognitive Source of Social CapitalThe cognitive source of social capital comes from mutual understanding and agreement between the parties in a rela-tionship. At the most basic level, speaking the same language creates a modicum of social capital. The level of language, however, is just as important. Companies must always use nontechnical language in their communications with stake-holders, even when it means using more words or losing some nonessential precision in meaning.

At a more abstract level, parties might use the same cog-nitive tools for approaching problems. For example, if both 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 that it can use to achieve whatever goals it sets for itself, whether those goals are poverty reduction, ecological footprint reduc-tion, or general community development.

Quite often the issues on which firms and stakehold-ers must develop a mutual understanding concern the general direction of future development in the community. Community stakeholders want to know what life will be like after the mine opens or after the mine closes. They need to know about down-sides such as population influx and the possibility of more crime. For its part, the company wants to know what the com-munity’s priorities are for future development. Balancing short- and long-term interests here means not promising too much just to get an acceptance level of social license. In these cases, a future visioning process is in order. The process helps set plan-ning priorities and taps the cognitive source of social capital.

How the Sources Work TogetherAlthough the sources of social capital can be described as distinct, in practice they are intertwined in every action and activity. Likewise, the stakeholders’ perceptions of legitimacy, credibility, and full trustworthiness develop organically along with the structural, relational, and cognitive aspects of the relationships.

Structural with CognitiveSpeaking the same language allows more communication to occur in the same amount of time. Inversely, communicating more frequently tends to create a shared set of understandings and frameworks. Shared understanding contributes to cred-ibility because the stakeholders understand more thoroughly how mining works. Understanding, of course, also contributes to the cognitive aspect of legitimacy.

Structural with RelationalThe gradual integration of the company into the stakeholder network (e.g., Figure 17.2-5) begins to create a shared iden-tity. The community gradually sees the company as a fixture in the network. As crosscutting ties increase in number, a shared identity can emerge, thus tapping into the relational source of social capital. Likewise, any preexisting shared identity can facilitate the company’s integration into the local network. For example, a local or domestic company might be able to create and strengthen ties more easily within the network.

Integration into the network builds legitimacy. Early in the process it creates the awareness and helps spread under-standing needed for cognitive legitimacy. Later it contributes to the taken-for-grantedness of the company’s presence, a more advanced form of cognitive legitimacy. Similarly, build-ing trust, reciprocity, and shared identity contributes to moral legitimacy. Cognitive understanding contributes to pragmatic legitimacy, and vice versa.

Company atPeriphery

Company inSemiperiphery

Company inCore

Figure 17.2-5 Structural dimension of social capital at each stage of the social license


Relational with CognitiveA future visioning process affords an opportunity for the com-pany to demonstrate honesty, transparency, concern for the community’s priorities, respect for the community’s leaders, responsiveness, and a willingness to share decision making on matters of mutual concern. All of these, in various pro-portions, contribute to stakeholder perceptions of legitimacy, credibility, and trustworthiness.

Often the process of coming to hold shared goals and visions for the future entails putting oneself in the other par-ty’s shoes. This can be difficult, but social capital from the relational source can make it much easier and often overlaps with the mutual perspective-taking feat (e.g., shared identity).

Dynamism in the ProcessThe levels of social capital in the firm–stakeholder relation-ships can fluctuate through the life cycle of the mine. Some of the determining factors may be beyond the control of either or both parties. More often, the actions of one or both par-ties raise or lower the level of social capital, with predictable effects on the level of social license. An example from an actual mine illustrates the point.

Figure 17.2-6 provides a graphical representation of the condition of the social license for the San Cristobal project over a 14-year time period from 1994 to 2008. Today, San Cristobal is a large zinc, lead, and silver mine in the south-ern Altiplano of Bolivia, operated by Minera San Cristobal (MSC), which is 65% owned by Apex Silver Mines Limited and 35% by Sumitomo Corporation. The quality of the social license was estimated initially from historical documents and the experience of persons who had been present throughout the life of the project using a basket of indicators and then verified through interviews with community members.

As can be seen in Figure 17.2-6 the quality of the relation-ship changed over time in response to various factors, which may be summarized as follows with reference to the numbers beside the graphical trace in the figure.

1. Rights to the mining concession are acquired by Mintec, a Bolivian mining consulting firm, which, together with permission from the community to access the surface, establishes formal legal status and permission to start work on the ground. The company rapidly builds social legitimacy with the local community by providing infor-mation and employment.

2. Geological indicators of widespread mineralization are identified. Mintec, and later ASC Bolivia LDC (ASC), an Apex Silver Mines Limited subsidiary that had acquired Mintec, steps up a dialogue with the commu-nity and provides additional benefits. Social and envi-ronmental baseline studies for an environmental impact assessment are initiated.

3. Clear indications of a very large mineral system are dem-onstrated through drilling. ASC believes that a mine can be developed in the near future. Accordingly, the com-pany begins a process of consultation with the community of San Cristobal to relocate the population away from the mineral deposit. ASC empowers the community to man-age essential aspects of the relocation such as selection of the new town site, design of houses and infrastructure, eligibility, and a benefit package. The community comes to feel that they are partners (co-owners) in the project— ASC has the mineral deposit, but the community has

given its land to make the mine possible. Negotiations begin with the sister community of Culpina K for land for the tailings facility.

4. A comprehensive resettlement agreement is signed with the San Cristobal community. A land purchase agreement is reached with Culpina K. Trust reaches an all-time high.

5. The community of San Cristobal is relocated to the new town site together with the colonial church and cemetery.

6. The women, who were largely excluded from the nego-tiations and planning for the relocation, voice complaints about the houses: “They are not what we wanted.” Culpina K residents start to think that they have made a bad deal.

7. The project is then transferred by ASC to MSC. Trust is eroded because the company has failed to deliver on com-mitments made in the resettlement agreement. Further, although the company has obtained necessary permits to construct and operate a mine, there are now doubts as to the feasibility of the project, and the company has drasti-cally reduced the number of employees.

8. The project fails feasibility because of low metal prices. MSC closes all field operations. The communities are frustrated and trust is lost. Contacts between the company and the communities become infrequent. The company remains noncompliant with the terms of the resettlement agreement. Credibility is lost. The project remains legiti-mate in the minds of community members because they want the employment and the better future they hope it will bring.

9. Realizing the need to stabilize and strengthen the rela-tionship with the community, the company initiates a program of assistance centered on employment for local people, agriculture, and tourism. Credibility is restored with delivery of the program.

10. A highly innovative program to encourage tourism is launched. Culpina K becomes heavily involved; San Cristobal, less so because it would rather have the mine.

11. An upturn in market conditions renders the project positive, and MSC announces the start of construction. Credibility peaks as the communities welcome the con-struction of “their” mine and the potential for employ-ment during construction.

12. New management is installed to supervise construction that has no knowledge of the social history of the com-mitments to the communities. Contact between the com-pany and the communities breaks down as the company drops meetings with the communities that involve top management. The communities feel deserted and disen-franchised because of a perception that they are not being respected and commitments for employment and training are not being honored. Credibility is lost almost imme-diately. Despite employment for almost all local people, social legitimacy drains away as the communities feel they have been overlooked in the construction phase and commitments dating back to 1999 remain unfulfilled. They still believe in “their” mine and mourn the loss of the partnership that existed at the time of the relocation of San Cristobal.

13. A contractor opens a road though community gardens outside of the agreed area of construction operations. For the community of Culpina K, this is an illegal act. Social legitimacy is compromised, and community relations col-lapse for a period with demonstrations and confrontation


with the company. MSC is able to negotiate a letter of agreement that allows work to continue and begins a pro-tracted process of negotiation for the acquisition of addi-tional land for mine infrastructure facilities. Culpina K remains at a distance because of rising concerns that they will be adversely affected by the tailings facility.

14. Management comes to recognize the problems and risks created by the damaged relationship and takes action to improve the situation. The company proposes the forma-tion of a community-based process for the design and management of community-development programs. The communities see this as an opportunity to take control of their own future and feel empowered. At the same time, MSC begins an accelerated program to comply with all prior commitments. The communities see progress and feel reassured. Construction ends; training and full-time employment is available to all. Dialogue is established with Culpina K around the issue of management of the tailings. Legitimacy is regained.

15. A management team is appointed to run the mine, replac-ing the construction team, which brings stability and quickly establishes a positive dialogue with the com-munities. All prior commitments have been met or are in a visible process of being met. An accelerated local employment program is initiated. Community-based planning for social and economic development is under way. Credibility is restored.

16. MSC responds to community concerns regarding the management of tailings by forming a joint monitoring committee with the community. Essential infrastructure improvements are made in San Cristobal and Culpina K. Credibility is strengthened. As “co-owners” of the mine, the communities make representations to the national government in support of the company in response to statements of increased taxes and threats of nationaliza-tion. Trust, however, remains elusive.

17. With the mine in operation and the communities fully involved in the management of their own development,

in collaboration with MSC and local and regional govern-ment, there are early indications that trust could return to the relationship.

RELATIONSHIP BUILDING CHANGES BOTH SIDESThe Fiction of “Community” as an EntityUp to this point, the term community has been used in a reified way, that is, in a way that grants it an identity and singleness of purpose that does not always exist. Many so-called commu-nities are really aggregations of communities and/or kinship and interest groups. However, the concept of the social license to operate presupposes that all the families, clans, interest groups, and institutions in a geographic area have arrived at a shared vision for their future, or at least an agreed-upon set of priorities for today. This kind of cohesion is frequently absent. In such cases, it has to be built. That is why earning a social license to operate often involves the company in building social capital, also known as community building, capacity building, and institution strengthening.

Industries, and the companies in them, have to learn how to participate in the kind of community partnerships that earn a social license. Reciprocally, communities that want the benefits of participating in the mainstream economy have to develop the social structure that makes them capable of issu-ing a legitimate, credible, and trustworthy social license.

Communities Not Qualified to Issue a Social License to OperateThe key to a community’s capacity to issue a meaning-ful social license is the pattern of social capital it has in its network structure. Without the right patterns of social capi-tal, a community cannot stick to its commitment through the inevitable changes in local politics. Companies want a license that reduces the risk of investing in mining infrastructure. Figure 17.2-7A, B, and C illustrate three examples of how communities can have a social capital network structure that makes them unlikely to be capable of issuing the social license to operate that companies want.

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Figure 17.2-6 The ups and downs of social capital at San Cristobal mine


Figure 17.2-7A shows a community with a severe lack of social capital. It has no core. It is an aggregate of groups that do not talk to each other. This is the pattern one would expect in a region after a natural disaster or war. There may be pockets of groups that deal with each other, but over the whole geographic region, or across all the stakeholders in the issue, there is little communication. No one can speak for the whole community, and therefore the community can neither issue nor revoke a social license to proceed. In this circumstance, companies usually fall back on the legal licensing process at the national level. Unfortunately, if the community subse-quently comes together and finds a voice, that legal license can become worthless.

Another common hindrance to being capable of issuing a social license is the existence of an elite that purports to speak for everyone (see Figure 17.2-7B). The core has numer-ous relations of bridging social capital to peripheral groups. The peripheral groups have little social capital among them-selves. Although dealing with this kind of structure is admin-istratively convenient, there are dangers related to the elite’s own legitimacy. Such elites are often tempted to put their own interests ahead of the interests of the whole commu-nity. Sometimes they stay in power by keeping everyone else divided, ignorant, or intimidated. Multinationals often fall prey to such groups when only the elites know the native language of the company representatives. Often they have been educated in the developed world and know the norms for doing business in the company’s home country. The elites will say they can issue a social license, but once development gets underway, the objections of the excluded groups come to the surface. The company can then be lumped together with the elite as part of an illegitimate and corrupt establish-ment. This, of course, calls the social license into question.

Figure 17.2-7C shows another dysfunctional commu-nity structure. There is plenty of bonding social capital, but it is confined to tight-knit factions. To the extent that a core exists to speak for everyone, it is beholden to the leaders of the factions, be they mayors, war lords, clerics, or members of parliament. Because the factions are continually creating and destroying alliances in attempts to dominate the core, there is never a community with enough cohesion to ensure that any social license will be durable. The company can easily be drawn into the political machinations, either as a benevolent ally of one faction or an evil villain against which another fac-tion rallies support.

Diagnosing Community Readiness to IssueCompanies that want a social license clearly need to know the patterns of the social capital in the network from which they expect to get the social license. Figure 17.2-7D is the ideal

social capital structure for a stakeholder network. This type of community can make decisions that include everyone and that will work for everyone’s benefit. It can stand behind the decisions for the long term but also has the flexibility to adapt its goals to changing circumstances.

Fortunately, social capital has been studied quite thor-oughly in the social sciences for more than 15 years. Ways have been developed to quickly assess its patterns in a net-work, whether that is a geographic community or a wider set of stakeholders that includes national government depart-ments and international NGOs. The basic approach is to inter-view the stakeholders about four areas of concern: (1) what their concerns are, (2) which other groups they consider to be stakeholders, (3) the quality of their relationship with the company, and (4) the quality of their relationships with other stakeholders. Data from interviews of this type provide a well-rounded basis for a stakeholder engagement strategy leading to a social license.

Ways to Approach Identified ProblemsAfter a map of the social capital structure in the community is at hand, it is possible to determine where the effort should be focused. If the community looks like Figure 17.2-7A, it is necessary to start with basic communications among groups. If the community looks like Figure 17.2-7B, the first step is to make connections with the periphery groups and connect them with each other. If it looks like Figure 17.2-7C, efforts to strengthen the core are needed. A group of leaders from each faction must work together on a project long enough to develop a sense of shared purpose that is community-wide.

Each community has its own specific issues and prob-lems that provide plenty of opportunities for bringing people together. Often the initial focus has to be setting community priorities and then identifying those that can be achieved in collaboration with the company. Wilson and Wilson (2006) offer numerous examples of initiatives that build social capi-tal. These span diverse areas of operations from security to catering. Activities that build social capital rarely cost very much money. Usually they simply involve redirecting funds from an approach that ignores or damages the company’s social license to an approach that improves and secures the social license. Sometimes they actually reduce costs, as occurs when the work to improve the capacities of local suppliers cre-ates a stable of lower-cost local sources for goods and services previously imported from elsewhere.

Social License, Poverty Reduction, and Sustainable DevelopmentThe process of helping a community acquire the balance of social capital needed to issue a social license amounts

A. Isolated groups;no community

B. Elite hub withperipheral spokes

C. Strong factions;weak, contested core

D. Cohesive balance;smooth gradient of inclusion

Figure 17.2-7 Four prototypical patterns of stakeholder network structure


to strengthening the community to the point where it can be a strong, reliable partner in achieving whatever goals it sets for itself. This happens to be the same process that community development specialists follow in initiatives to reduce poverty. Social capital building and balanc-ing initiatives have been shown to reduce poverty, but as Figure 17.2-7 indicates, the pattern of social capital has to be balanced (e.g., Figure 17.2-7D). In addition to a strong core, the overall pattern should integrate all subgroups to avoid isolation of the periphery. When these conditions are met, communities can benefit from the presence of a national or international corporation. The company can create or broker links to the larger economy outside the community. Such links are called linking social capital (Woolcock 1998). Through linking social capital, a com-munity can gain access to more distant markets, for both its goods and its services (i.e., remittance income). Therefore, gaining and maintaining a social license employs the same set of activities that promote sustainable community devel-opment. Both goals depend on strengthening the commu-nity to the point where it can be a stable, committed partner in development initiatives.

TOOLS AND GUIDELINESCompanies use numerous tools and guidelines to help them do the things that earn a social license. These tools often bear labels related to “corporate social responsibility,” “sus-tainability,” or various more specific issues like corruption, transparency, or the environment. Leipziger (2003) reviewed hundreds of such codes, lists of principles, and guidelines. She reviewed more than two dozen of them in detail. Some of them reiterate many of the principles discussed above. Those that contain recommendations for specific steps and activities will not always work. Communities and circumstances are too varied to be amenable to any one-size-fits-all program. That is why the more general principles must take precedence over concrete recommendations. Although some guidelines sound too vague to be practical, it is actually the more specific ele-ments that are less practical because they help only in some circumstances but not in others. Ultimately the social, cul-tural, and political dynamics of the individual community or communities that are neighbors to mining projects have to be understood, and tools and guidelines must be adapted to meet the characteristics encountered on the ground.

Exploration PracticesFor explorers, The Principles and Guidance for Responsible Exploration, produced by the Prospectors and Developers Association of Canada (PDAC 2009a) together with the e3Plus on-line reference manual for good practice (PDAC 2009b) are invaluable aides to gaining legitimacy and cred-ibility with local communities and hence acceptance and a conditional social license.

For projects that advance to feasibility and construction, the key sources of information for the management of social, socio-environmental, socioeconomic, and certain cultural mat-ters are the Performance Standards on Social and Environmental Sustainability of the International Finance Corporation (IFC) of the World Bank (IFC 2006) and the Equator Principles (EPFIs 2006), a parallel set of guidelines created by the private-sector banks. While not created specifically for the mining sector, the IFC standards and a series of accompanying manuals are based on extensive practical experience that is of immediate relevance

to mining projects. The IFC standards emphasize disclosure of information, consultation, participatory processes of inves-tigation, and decision making with the community and other stakeholders; inclusion and protection of vulnerable and mar-ginalized groups; respect for rights; participation in the benefits of mining; and so forth, all of which are actions that can create social legitimacy and, properly implemented, credibility for the company and hence a base for building trust.

Mine Operation from Construction Through PostclosureBusiness for Social Responsibility (2003b) and AccountAbility and Business for Social Responsibility (2004) provide case histories and discussion of the social license together with practical advice on how a social license may be gained.

The principles and guidelines of the International Council on Mining and Metals (ICMM) provide a point of reference at the global level for good practice that aids acquisition of the social license (ICMM 2003). In addition, the ICMM has prepared a series of good-practice handbooks that offer prac-tical advice on the management of various aspects of min-ing, including social and community development. At the same time, mining associations in a number of countries have developed guidelines optimized to national legal, cultural, and social norms; both Canada and Australia, for example, have developed such instruments.

The Mining, Minerals and Sustainable Development (MMSD) project identified a portfolio of initiatives that sup-port gaining and maintaining a social license and are critical if mining projects are to make a contribution to sustainable development (MMSD 2002a). They include

• Supporting people (social capital) and investing in people (human capital),

• Supporting and strengthening existing governance struc-tures (social capital),

• Facilitating continuous learning and improvement (human capital), and

• Helping local populations anticipate and take advantage of mine development to improve their quality of life (as defined by them) beyond the life of the project or mine (balancing human and social capital).

The MMSD project also created a framework for assess-ing a mining project’s contribution to sustainable develop-ment, which includes material that can be used to design projects in a way that helps in gaining the social license to operate (MMSD 2002b).

As with the examples above, full implementation of the recommendations contained in these documents in ways that are sensitive to local social and cultural norms can signifi-cantly assist in gaining and maintaining the social license.

General Guidelines for All Types of BusinessesIn the developed world, various existing political forces came together to create an ad hoc governance regime to regulate global corporations. The result of the ad hoc, piecemeal col-laboration has been the emergence of some mechanisms for influencing corporate behavior. The influence strategies are each centered on a different set of stakeholders.

One of the most important stakeholder groups has been investors. The socially responsible investment movement applies investment screening criteria that have been promoted by the aforementioned loose coalition. In 2007, ethically screened investments accounted for US$4.93 trillion in assets


in United States and Europe alone (Social Investment Forum 2009). Prominent rating systems in the ethical investment field include the Calvert Social Index, the Dow Jones Sustainability Index, the FTSE4Good Index, and KLD’s Domini 400 Social Index.

The same general influence mechanism has been called into play with lenders. The IFC has developed Performance Standards on Social and Environmental Sustainability, which are incorporated into the Equator Principles that have been adopted by most of the major commercial banks that finance mines. Companies seeking financing must pass independent assessments of their compliance with these standards for social and environmental performance.

In terms of employees and suppliers, there have been campaigns against child labor and sweatshops. The ILO has been very active in the area of mine safety. Its standards apply to governments, which in turn are supposed to enforce them on companies to whom it grants licenses.

The ILO 169 gives explicit instructions to governments to ensure that indigenous people are consulted before explora-tion and development of natural resources and that they share in the benefit that comes from resource development. This convention has a strong influence on corporate behavior even where governments are weak or absent, as is the case in many rural areas. The UNDRIP gives an even stronger instruction to governments to obtain the consent of indigenous people before any exploration or development of mineral resources.

Another approach is centered on consumers as stakehold-ers. Green and socially responsible consumer movements usu-ally focus on specific product classes. The “dirty gold” and “blood diamonds” campaigns are aimed directly at the miner-als industry.

The development of these influence channels has included the emergence of general codes and standards that spell out what is expected of companies. These expectations provide general guidance regarding how to earn a social license. Popular codes and standards that apply to all industries include the AA1000, the Global Reporting Initiative (GRI), and the venerable United Nations Universal Declaration of Human Rights (UNGA 1948).

The AA1000 was developed by the Institute for Social and Ethical AccountAbility (AccountAbility 2009). It consists of checklist-style framework for implementing changes in a company and a separate assurance process that verifies the company’s adherence.

The GRI deals with standards for transparent reporting on nonfinancial matters. The most recent version was developed with input from thousands of companies from all parts of the world. It is a comprehensive checklist that was intended to apply to all industries. (GRI 2006). To help mining companies reduce the burdensome paperwork, the ICMM has published a guide for focusing on the parts of the GRI that are relevant to its sustainable development principles (ICMM 2005).

SUMMARYThe fundamental tools for building relationships between mining projects and communities are the values that permeate the actions of the company. These include

• Respect and inclusiveness;• Transparency and honesty;• Listening and empathy;• Responsiveness and promise keeping;

• Goodwill, care, and protecting the interests of the other; and

• Clear rules and principled actions.

These are “soft” attributes that many mining company personnel find difficult to work with since they are not ame-nable to quantification in the same way as engineering and accounting. Nevertheless, they are keys to the creation of good, stable relationships and in many ways parallel the attributes of lasting personal relationships, friendships, and, indeed, a marriage.

ACKNOWLEDGMENTSThe authors thank Apex Silver for permission to present the history of the San Cristobal project; Juan Mamani, Javier Diez de Medina, and Margarita de Castro for providing the infor-mation on which the graphic history was first constructed; and the unknown community members who verified the data. The authors also acknowledge the support and intellectual contri-butions of Susan Joyce and Myriam Cabrera that led to the recognition of social legitimacy, credibility, and trust as the normative components of the social license to operate.

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