A company’s success is not solely determined by meeting legal requirements. It also hinges on maintaining its Social Licence to Operate (SLO)—the informal yet crucial approval granted by stakeholders such as the community, employees, consumers, and civil society. SLO is a foundation built on trust, ethics, and responsible corporate citizenship. When lost, it can have devastating consequences.
When a company loses its SLO, the consequences can be swift and severe. It is more than just a shift in public opinion; it can lead to community resistance, consumer boycotts, and financial instability. The company’s reputation takes a hit, projects are delayed, and legal challenges become more frequent and costly. In many cases, the damage to a company’s image can take years to undo, with financial repercussions that stretch even further. The loss of SLO creates a ripple effect, shaking investor confidence, damaging relationships with key stakeholders, and often forcing companies to reevaluate their entire strategy.
One of the most infamous examples of a company losing its SLO is BP, following the catastrophic 2010 Deepwater Horizon oil spill. The disaster not only claimed 11 lives but also wreaked havoc on the environment, leading to an outpouring of public outrage. Once regarded as a leader in energy, BP saw its reputation crumble almost overnight. The fallout was extensive billions in fines, plummeting stock prices, and a loss of public trust for over a decade.
The mining sector in South Africa offers another glaring example. Many companies have struggled with maintaining their SLO, especially regarding the communities surrounding their operations. Lonmin’s handling of worker grievances in 2012, which culminated in the Marikana Massacre, is a stark reminder of what can happen when a company ignores the concerns of its stakeholders. Poor living conditions, unsafe work environments, and inadequate wages sparked a national outcry that shook the industry and tainted Lonmin’s image irreparably.
Even the fast fashion industry has not been immune. Brands like H&M have faced criticism for their unsustainable practices, poor labour conditions, and environmental impact. These revelations sparked boycotts and drove many consumers toward more ethically conscious alternatives, proving that the loss of SLO can hit a company’s bottom line.
When a company loses its social licence to operate, the community often responds with protests, lobbying efforts, and negative media exposure. Regulatory bodies may intervene, imposing stricter rules or delaying project approvals. Financial losses soon follow as investors lose confidence and consumers turn to competitors. Moreover, employee morale can suffer, making it difficult for the company to attract and retain top talent.
It is possible to regain an SLO, but it requires significant effort and a commitment to change. Transparency is critical; companies must acknowledge their mistakes and implement meaningful reforms. Open dialogue with stakeholders is essential. For instance, Rio Tinto faced global outrage after destroying a 46,000-year-old Indigenous cultural site at Juukan Gorge in Australia. The company’s leadership committed to listening to Indigenous communities and implemented significantrestructuring efforts to rebuild trust.
Another critical step is investing in corporate social responsibility initiatives beyond mere optics. Starbucks, for example, faced a public relations crisis after incidents of racial bias. The company responded by introducing extensive training programs and fostering greater community engagement, gradually repairing its damaged reputation.
Sustainable business practices are vital to regaining and maintaining SLO in the long term. Companies like Unilever have embedded sustainability into their core operations, ensuring transparency in sourcing, ethical labour practices, and environmental stewardship. Their commitment to a broader societal good has earned them a loyal customer base and positive stakeholder relations.
The loss of a Social Licence to Operate is not just a reputational risk; it’s a business risk. Companies that fail to recognise its importance can face far-reaching consequences. However, those who take the necessary steps to rebuild trust, engage meaningfully with their stakeholders, and adopt responsible practices will survive and thrive in an increasingly socially conscious marketplace.
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Thabang Chiloane is the Chairperson of the Institute for Stakeholder Relations in Southern Africa (ISRSA). He writes in his personal capacity.