Social License to Operate (SLO): Definition and Standards

What Is the Social License to Operate (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.

Understanding the Social License to Operate (SLO)

The SLO is created and maintained slowly over time as a company builds 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 SLO is put in danger.

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' social license, but even smaller issues can have an impact. The offhand public comments of a chief executive officer (CEO) can threaten a company’s social license, and these gaffes often end up with the perpetrator being canned and denounced by the company.

The Increasing Standards for Social License to Operate (SLO)

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, are now under scrutiny and 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 considered smart business tactics.

In order to protect and build social license, 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 10 years ago from a cost-cutting perspective can cost a company much more in the long run if it endangers their social license.