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Social licence to operate is implied, yet critical for business

Social, informal, and implied licences to operate in communities are vital for new businesses, as well as those establishing themselves in new locations or growing their operations, according to the CEO of the Committee for Economic Development of Australia.

user iconGrace Ormsby 04 December 2018 Corporate Counsel
Social licence to operate is implied, yet critical for business
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Melinda Cilento, in her role as chief executive officer for CEDA and non-executive director of Woodside Petroleum & Australian Unity, was deliberating on the challenge of defining and translating social licence to operate at the recent Governance Institute of Australia National Conference.

“Social licence to operate refers to a situation in which the community grants an informal licence or an informal, ongoing, acceptance for a business to operate in its community,” Ms Cilento explained.

To further query why a community would grant such a licence, she expressed her belief that they do “because they accept that the business they are conferring that licence to, in their view, has the skills and the experience, in other words the credentials or the credibility,” to operate in that area.


“The community also has confidence that that business and its decision-makers are going to take into account and respect the expectations of the community and understand the impact of its activities on that community in a positive and constructive way,” Ms Cilento continued.

Such a social, informal, and implied licence is now important no matter whether it is viewed from a glass-half-empty or a glass-half-full approach, according to Ms Cilento.

The negative reasoning, for the chief executive officer, is “because its far more difficult to operate without a social licence.”

Elaborating on her response, Ms Cilento said that without a social licence to operate, “you bump into community resistance in a whole host of ways.”

“You find it difficult to attract employees, you can face community protest, you can find it difficult to engage constructively with local suppliers, and quite frankly, you can find it difficult to secure finance,” she explained.

On the other hand, the glass-half-full reasoning, “enables you to achieve so much more”, according to Ms Cilento, and leads to the concept of “shared value”.

For her, social licence is “about engagement” with the community.

“Much more than consulting,” Ms Cilento said “engagement is about spending time to explain yourself and your plans as a business, spending time to understand what community concerns and expectations are in regard to [business] activities and plans but also more broadly.”

To earn trust and confidence, she said that businesses need to make clear commitments, “about how the organisation and its employees will behave, things that will and won’t happen, about the opportunities that will be available to the community through employment, through contracting, and actually as customers.”

Ms Cilento believes businesses must also make commitments around dealing “with any potential adverse impacts from its activities and to provide the community with confidence about how these are going to be managed and addressed and communicated.”

Finally, businesses need to be transparent about their performance against such commitments to build such confidence and trust, and she noted that “this is all about credibility, reliability, and trust.”

To clarify her position on the matter of social licence to operate, Ms Cilento said “business needs to hear, business needs to respond, business needs to show.”

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