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From Northern Gateway to Keystone, the undefinable ‘social licence’ movement is in control of jobs and growth

As Milton Friedman predicted, corporate social responsibility has failed and left business more vulnerable

The Northern Gateway and Keystone pipelines keep getting hammered, the result of what seems like universal adoption of a new free-market killing concept known as a “social licence to operate.” The idea is an outgrowth of the anti-corporate governance crusades and NGO activism of the last few decades. First came stakeholderism, then corporate social responsibility(CSR). At least with CSR corporations were seen to be in charge of their own affairs, taking it upon themselves to curb their carbon emissions and diversify their workforces, or whatever, as they saw fit. Under social licence mandates, corporations must now negotiate directly with the people, in line with the old Communist maxim: “Everything belongs to the people.” The corporate sector fell for the idea, and now it is lost under what has become something of social licence to kill growth and jobs.

In a non-binding plebesite earlier this month, residents of Kitimat, B.C., appeared to reject Enbridge’s Northern Gateway gas pipeline and tanker port project. The 60-40 verdict was taken as a defeat for Enbridge, a sign that -–as the Vancouver Sun editorialized—the company “simply does not have the social licence necessary to proceed.” A few days later, U.S. President Barack Obama again postponed a decision on the Keystone XL pipeline, a blow to TransCanada and evidence that the company had failed to secure a “social licence” for the project that would give Washington the social authority to approve the project.

It’s not new, but over the last couple of years the idea that corporations need to obtain a “social licence to operate” has rocketed to the top of ideological hit parade. Some see it as a part of a major reform of capitalism, taking economic decision-making away from corporations and private initiative and imposing greater social control. Harvard’s Michael Porter, consultant to the corporate elites, sees an opportunity to “reinvent capitalism” by bringing “business and society back together.”

Apparently it’s not enough that business operates in a free-market economy governed by property rights, regulation, the rule of law and the market. Now business needs something more, some kind of project-by-project public consent to build plants, open mines, ship oil, or operate drive-through do-nut shops. More broadly, corporations need to secure social licences for their brands, from Coke to Exxon, or face constant war with NGOs and an endless parade of people with social, political and ideological grievances.

Exactly what these social licences entail remains mostly a mystery. Even its proponents refuse to, or simply cannot, define the concept. One of the chief proponents of the social licence movement, industry consultant Ian Thomson, waffled endlessly last week when he was asked repeatedly on CBC Radio’s The 180 with Jim Brown to explain what a social licence meant. “It is defined by the people, and we talk about community but a community is not necessarily a homogenous being. We look for a consensus position and what is driving that…So a social licence is based on people’s perceptions, it’s impermanent, it’s unwritten, it’s subject to change.”

All of which leaves any corporation looking for social licence approval at the perpetual mercy of the rising and falling tides of public opinion as fanned by activists, NGOs, the media and whatever the corporate communications consultants can come up with in response. When TransCanada faces mass demonstrations over Keystone, or a klatch of locals hit the barricades against Enbridge’s Northern Gateway, the social licence for the projects may be in doubt and therefore they should not proceed, no matter what the law or regulators or the market or politicians say.



That certainly appears to be the plan. “The reality today is that industry faces a triple licencing hurdle: a commercial licence, a policy/regulatory licence and a social licence,” says Dale Eisler, a senior fellow at the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan. Writing in Policy Options magazine last January, Mr. Eisler says the three licencing hurdles require “arriving at some form of public-private consensus as to what is concisidered a social licence, then agreeing on how to achieve and maintain it. And to get there, government must adapt its ways to play the necessary role and facilitate that pro cess.”

In short, the new capitalism overthrows the market and property rights appoints the government and politicians as overseers of endless direct public negotiations between corporations and the people.

How modern capitalism came to this sorry place is a story that goes back a couple of decades. Sir Wilfred Laurier Professor Jason Prno, in a paper last year in the journal Resources Policy, says the phrase “social licence” were coined by mining consultant Jim Cooney in 1997. Mr. Cooney is now with Canadian Business fo0r Social Responsibility, an outfit whose mission is to “accelerate and scale corporate social and environmental sustainability in Canada and challenge the ‘business as usual’ model.”

Today, the mining industry and most of the corporate world, under the influence of the corporate social responsibility mantra, also in some way acknowledges the “social licence to operate” mandate. Most corporate executives, however, are likely unaware that they are taking their businesses and the entire economy deeper in the anti-capitalist forest, where they are walking into a trap.

It’s a trap forewarned by Milton Friedman. The late free-market champion of capitalism is often damned for having said that the primary social responsibility of business is to maximize profits. Most recently, Michael Porter—laying the ground for his plan to “reinvent” capitalism—dismissed Mr. Friedman’s defense of profits as the main objective of corporate activity.

But Mr. Friedman had more to say on the subject, warning in 1970 that the idea of corporate social responsibility was a “subversive” doctrine that threatened markets and corporations, forcing business to do things it cannot do. Social responsibility “helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats.”

Now here’s the terrible and ugly irony. Mr. Porter cites only Mr. Friedman’s famous comment on profits being the prime objective of business and ignores the Friedman warning about the negative consequences of business adopting corporate social responsibilities.

But then Mr. Porter, as part of his capitalism reinvention plan, says corporate social responsibility has been a disaster. “The more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures,” wrote Mr. Porter in Creating Shared Value, his 2011 Harvard Business Review reinvention manifesto. “The legitimacy of business has fallen to levels not seen in recent history”–as predicted by Milton Friedman!

And so now, with the CSR movement declared a failure, the CSR consultants and managers are moving onto the next phase, social licence programs. Under CSR, corporate executives retained control over their social responsibilities, adopting reforms, programs and policies as they saw fit They more they did, however, the more they highlighted their failures according to social criteria developed by consultants, activists and NGOs. With the growth in the social licence movement, corporate executives loose even more control and must now, apparently, answer directly to the people. Maybe it was part of the original CSR plan.

Terence Corcoran: From Northern Gateway to Keystone, the undefinable ‘social licence’ movement is in control of jobs and growth | Financial Post (external - login to view)