What is 'Social License (SLO)'

The Social License to Operate (SLO), or simply social license, refers to the ongoing acceptance of a company or industry's standard business practices and operating procedures by its employees, stakeholders and the general public. The concept of social license is closely related to the concept of sustainability and the triple bottom line. Social license to operate is created and maintained slowly over time as the actions of a company build trust with the community it operates in and other stakeholders. A company must be seen operating responsibly, taking care of its employees and the environment, and being a good corporate citizen. When problems do occur, the company must act quickly to resolve the issues or the social license to operate is put in danger.

BREAKING DOWN 'Social License (SLO)'

Social license to operate (SLO) is difficult to define and impossible to measure. Companies and industries often run into the concept only when it is too late. High profile disasters, such as BP’s Deepwater Horizon oil spill are nightmares for companies and entire industries' SLO, but even smaller issues can have an impact. The offhand public comments of a CEO can threaten a company’s SLO, and these gaffes often end up with the perpetrator being canned and denounced by the company.

The Increasing Standards for Social License to Operate

The standards to which companies are expected to behave are increasing over time. Things that wouldn’t have been unusual 100 years ago, such as child labor and unsafe working conditions are outlawed in many nations. Things that were not unusual 25 years ago, such as all-male executives and board members, discriminatory hiring practices and outsourcing to regions without comparative labor rules may be on their way out. As time goes on, these changes feel like common sense — of course, tobacco ads shouldn’t target kids and refineries shouldn’t be pumping waste into streams. However, these now taboo actions were once smart business tactics.

In order to protect and build SLO, companies are encouraged to first do the right thing and then be seen doing the right thing. This means evaluating and re-evaluating supply chains, waste management, human resource management and all the other aspects of a business with a critical eye. Executives have to ask themselves the same questions they imagine an outraged press would come up with. Should we be buying from the lowest cost supplier? What do we know about their operation? Are we going to be caught up in something like the 2013 Bangladesh factory collapse? Do we treat our own staff fairly?

Some things that made sense five or ten years ago from a cost-cutting perspective can cost a company much more in the long run if it endangers their SLO.

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