[MUSIC] This is Mike Rosenberg with the third segment of the second session of strategy and sustainability, the second session is all about strategy issues. Which I believe the political process transcend our values. It's really about what business has to pay attention to in this environmental space to do it's responsibility for shareholders. The second issue I'll talk about is license to operate, and really there's two types of license to operate. One is the regulatory type, and those are company have all of its permits, all of its permissions. Does it obey the law? And can it actually function? Can it actually operate with the balance of what is the legal framework is? This is one thing. Something a little bit different is it doesn't have this socializing stuff. Due to social society itself except the company. And accept that it should be there. These two things are not exactly the same. They are related. And they are related in several different ways. One way is that there is a time lack between the opinion in civil society, and the nature of the regulations which business has to deal with. So people begin to become concerned about something. They start talking about it, politicians notice that. Somehow this works it's way into the political system, and eventually becomes regulation. So in the medium term, things which are in the public domain will eventually become part of the regulatory license to operate. Corruption is also a very important part of the story. And in different parts of the world there is a disconnect between what people care about and what the law says through influence and the political process on the part of some industry. And also through the inability in some countries for the government to make sure that the law is followed. In developing countries sometimes you have inspectors or not too many inspectors because of budgetary reasons. Or the inspectors you do have maybe make so little money that it becomes easy. For people who are ready to do so, to ask them to look the other way, in terms of certain practices and policies. And this is real and this is part of business and we'll talk a little bit at the end of the session about what the implication for business are when you deal with that, and how to get around it. And the last issue is representativity, or if you will, does government actually represent the interests of civil society. And you might take that for granted in England or in Australia or in parts of the US, but that's not true all over the world. In some parts of the world you have the government owns much of the means of production. Maybe the President's family is running certain businesses. So you might have instances when it's just not clear that government is actually there for the people. And you have, in some parts of the world, what you might call a mafia state or a situation where the government is really in it for itself and it's protected by solders and protected from civil society. So when that happens, then the question is are there regulations at all linked to the needs of civil society and how far can people go to ask companies to do the right thing. But in any case, it's useful to have these two different concepts especially in the west where the rules of the game are a little more predictable. Now, within this idea, there's a consultant in the mining industry. And the mining industry has done quite a lot of work on the social license to operate called the Ian Thompson. Mr. Thompson talks about four different phases, if you will, of the relationship between society and business. He talks about, first, acceptance. Acceptance is that we accept that this business is there. We feel that they are legitimate, and eventually that they're credible, that what they say we can believe. This leads to approval. And finally, as trust builds between a company, and the community, and the greater civil society around it, maybe even identification with its goals. Now, to go from this process of legitimacy through to trust takes quite a long time. How long would it take to go from trust through the process of rejection and lose all that goodwill and in actual fact it can happen very, very quickly. And the company can dropped from acceptance to rejection or to illegitimacy and find itself facing protests and boycotts and eventually to lose that license to operate after which, business is more or less over. Examples, this is Tony Hayward, the president of BP at the time of the Deepwater Horizon accident testifying before the US Congress. Now, Mr. Hayward made some unfortunate statements to the press. He was misquoted or quoted out of context. And then he did make some very poor remarks which put him into a lot of trouble with the American public. It got so bad at one point that president Barack Obama said that if Mr. Haywood was working for him he would not be working for him anymore. When the President of the United States says you should be out of a job then you might have to think about what you're doing. Eventually BP replaced Mr. Hayward with an American who seemed to relate better to the citizens of Louisiana and the other affected regions. And this gentleman, now Mr. Dudley is the new president of BP, and Mr. Hayward's done very well. He's gone off to do other things. But BP had bought several companies in the US, was very exposed to it's US business and really had to do whatever it took to pay the fines, to repair it's reputation in order to continue to do business in the United States. Below that is an image of an advertisement that Greenpeace made to attack Nestle by attacking it's KitKat candy bar. The issue that Greenpeace was trying to call attention to was the plight of the orangutan in the forests of Indonesia where companies were mining, knocking down the trees to plant palm oil plantations. And the orangutan was losing it's habitat. Palm oil is an ingredient for many foods including chocolate. Nestle was buying palm oil through another subsidiary from a company which had some questionable practices. But this attack, the launch of this video which went viral very quickly, and it said that Nestle is killing orangutans. And Nestle had to react very quickly to tighten up his palm oil purchasing processes and to say, hey, we're doing our best to protect orangutans because this really get straight at the heart of its value proposition to consumers. The example on the top, on the right is Volkswagen, this is kind of which I will talk about some length In another one of these segments. But the scandal itself goes at the heart of can we trust Volkswagen to do the right thing, this is a brand which had a fantastic reputation. And to some degree lost quite a lot of it. So the City Corp has been targeted several times by the Rainforest Action Network, first to stop supporting logging of hard woods and, and the Amazon for example, rainforest and later to work on coal. So for this examples, are examples where civil society became concerned about a company's practices then those companies will have to react in order to mollify that concern. And to protect their license to operate which is a very, very valuable and very, very tenuous thing that most companies have they need to pay attention. [MUSIC]
