Abstract
Does the observation that markets operate subject to the licence of society make sense? It does. This chapter considers, in turn, which societies give the licence, to whom it is given, how you can tell if it has been given and its terms. Concerning the last, the social licence is not about a set of written rules. Rather, it advances an account of the role of financial markets in the societies in which they operate, both as it is and as it could be at its best. It recognises an aspiration about how finance should be carried on and the outcomes it should produce—its ends. It is also relevant to another key driver of behaviour—the meaning of the social world.
Real markets are resilient, fair and effective. They maintain their social licence.
—Building real markets for the good of the people, speech by Mark Carney, Governor of the Bank of England, London 10 June 2015.
This chapter builds on David Rouch, ‘The Social Licence for Financial Markets, Written Standards and Aspiration’ in Edward Elgar Handbook on Law and Ethics in Banking and Finance, eds. Costanza Russo, Rosa M. Lastra and William Blair (Edward Elgar 2019).
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Notes
- 1.
Caroline Binham and Martin Arnold, ‘Bank of England governor Mark Carney to extend market abuse rules’, Financial Times, London, 11 June 2015.
- 2.
The idea of a ‘social licence to operate’ has been around in the mining sector since the late 1990s, but talk of a ‘social licence for financial markets’ is largely novel. It was not mentioned in the final report on the UK Fair and Effective Markets Review published in June 2015 by the Bank of England, HM Treasury and the Financial Conduct Authority, following an extensive assessment of how to re-establish confidence in the fixed income, currency and commodities markets. However, it subsequently became a key topic at the Bank of England’s Open Forum in November 2015, held as a result of the Review.
- 3.
For example both ABN Amro and HSBC noted it in their 2018 reporting: ABN AMRO Value Creating Topics, ABN AMRO 2018; Environmental, Social and Governance (ESG) Update: Supporting Sustainable Growth, HSBC Holdings plc, April 2018. See also the Salz Review of Barclays, which also assumes that a bank’s ‘licence to operate’ is based upon social trust: Salz Review: An Independent Review of Barclays’ Business Practices, April 2013 at paragraph 2.4, available at https://online.wsj.com/public/resources/documents/SalzReview04032013.pdf (accessed 8 November 2019).
- 4.
The Asset Owner of Tomorrow: Business Model Changes for the Great Acceleration, Thinking Ahead Institute, Willis Towers Watson 2017, available at https://www.thinkingaheadinstitute.org/en/Library/Public/Research-and-Ideas/2017/11/The-asset-owners-of-tomorrow (accessed 9 April 2019).
- 5.
A word search of the Financial Times on 20 March 2019 discloses almost no discussion of the topic in the context of the financial sector and nor does it seem to have occasioned much debate among the main financial industry associations.
- 6.
Justin O’Brien, et al., Professional Standards and the Social Licence to Operate: A Panacea for Finance or an Exercise in Symbolism? Law and Financial Markets Review, 2015, Vol. 9(4), 283–292, 284.
- 7.
A further question concerns how the licence is enforced. However, the processes by which the recognition of a social licence for financial markets can change behaviour will be covered in the following chapters.
- 8.
Very broadly, the law regulating the relationship between the state and individuals (but also the state’s power to run a country).
- 9.
- 10.
Russell v Ministry of Commerce for Northern Ireland [1945] NI 184 per Black J.
- 11.
This is not to suggest that governments perfectly represent the aspirations of the governed. For example, the machinery of state is susceptible to ‘capture’ by interest groups including large businesses and single-issue campaigning organisations (in the context of the SLO, see, for example, Shane Gunster and Robert Neubauer, From Public Relations to Mob Rule: Media Framing of Social Licence in Canada, Canadian Journal of Communication, 2018, Vol. 43(1), 11–32). However, if the government concerned has a basic level of legitimacy, there should be some correlation.
- 12.
Those writing about the SLO have tended to treat legal licences as distinct from the ‘social licence’ (see, for example, Kieren Moffat, et al., The Social Licence to Operate: A Critical Review, Forestry, 2016, Vol. 89(5), 477–488, 481–482; John Morrison, The Social License: How to Keep Your Organization Legitimate (Palgrave Macmillan 2014), 21). However, since in many countries the grant of a legal licence is also the expression of a social process, it seems more appropriate to regard statutory licensing as part of the exercise of obtaining a social licence. The close connection between the two and the way in which statutory licensing strengthens the operation of a wider social licence is highlighted in Neil Gunningham, Robert A. Kagan and Dorothy Thornton, Social License and Environmental Protection: Why Businesses Go Beyond Compliance, Law and Social Enquiry, 2004, Vol. 29(2), 307–341.
- 13.
L.C.B. Gower, The English Private Company, Law and Contemporary Problems, 1953, Vol. 18, 535–545. See also David Ciepley, Beyond Public and Private: Toward a Political Theory of the Corporation, American Political Science Review, 2013, Vol. 107(1), 139–158.
- 14.
Mark Granovetter, Economic Action and Social Structure: The Problem of Embeddedness, American Journal of Sociology, 1985, Vol. 91(3), 481–510; Alejandro Portes, Economic Sociology: A Systematic Inquiry (Princeton University Press 2010).
- 15.
Martin Brueckner and Marian Eabrasu, Pinning Down the Social License to Operate (SLO): The Problem of Normative Complexity, Resources Policy, 2018, Vol. 59, 217–226; Gunster and Neubauer, From Public Relations to Mob Rule: Media Framing of Social Licence in Canada; Joel Gehman, Lianne M. Lefsrud and Stewart Fast, Social License to Operate: Legitimacy by Another Name? Canadian Public Administration, 2017, Vol. 60(2), 293–317; John R. Owen and Deanna Kemp, Social Licence and Mining: A Critical Perspective, Resources Policy, 2013, Vol. 38(1), 29–35.
- 16.
Robert G. Boutilier, Frequently Asked Questions About the Social Licence to Operate, Impact Assessment and Project Appraisal, 2014, Vol. 32(4), 263–272; Kieren Moffat and Airong Zhang, The Paths to Social Licence to Operate: An Integrative Model Explaining Community Acceptance of Mining, Resources Policy, 2014, Vol. 39(1), 61–70, 61; Charles Mather and Lucia Fanning, Social Licence and Aquaculture: Towards a Research Agenda, Marine Policy, 2019, Vol. 99, 275–282; Peter Edwards, et al., Social Licence to Operate and Forestry – An Introduction, Forestry, 2016, Vol. 89(5), 473–476; Gunningham, Kagan and Thornton, Social License and Environmental Protection: Why Businesses Go Beyond Compliance.
- 17.
Moffat and Zhang, The Paths to Social Licence to Operate: An Integrative Model Explaining Community Acceptance of Mining, 61.
- 18.
Brueckner and Eabrasu, Pinning Down the Social License to Operate (SLO): The Problem of Normative Complexity, 223; Owen and Kemp, Social Licence and Mining: A Critical Perspective.
- 19.
Gunster and Neubauer, From Public Relations to Mob Rule: Media Framing of Social Licence in Canada; Brueckner and Eabrasu, Pinning Down the Social License to Operate (SLO): The Problem of Normative Complexity, 218; Owen and Kemp, Social Licence and Mining: A Critical Perspective; Morrison, The Social License: How to Keep Your Organization Legitimate.
- 20.
Moffat, et al., The Social Licence to Operate: A Critical Review, 481; Morrison, The Social License: How to Keep Your Organization Legitimate; Leeora Black, The Social Licence to Operate: Your Management Framework for Complex Times (Dō Sustainability, 2013).
- 21.
Public responses are available at https://www.asx.com.au/regulation/corporate-governance-council/review-and-submissions.htm (accessed 13 March 2019).
- 22.
Comments from the Law Council of Australia (which was not acting on behalf of the directors) came closest to it (paragraph 47), but even they raised the question ‘exactly what does it mean?’
- 23.
- 24.
Corporate Governance Principles and Recommendations, 4th Edn, ASX Corporate Governance Council, February 2019. The final drafting of the Principle retains the original reference to acting ‘lawfully, ethically and responsibly’, which clearly extends beyond simple compliance with legal obligations. The associated guidance now references the legal duties of directors by linking them to the need to ‘build long-term sustainable value for security holders’. However, the guidance talks about the need for a company to have ‘values’ in a manner that contemplates those values not being purely financial. A new recommendation (Sect. 3.1) then states that ‘A listed entity should articulate and disclose its values.’
- 25.
It emerged in the Canadian press in 2014 and has been ongoing. The press seem to have broadly accepted the idea of an SLO until then. However, a group of journalists and others have since published a series of articles calling into question whether there is such a thing, stimulated, in part, by the way campaigning groups and some political figures had used the idea in advancing their agenda. However, as with the Australian debate, even some of those raising concerns seem to acknowledge that business does indeed need some sort of social consent (see, e.g., Brian Lee Crowley, When Demands for “Social Licence” Become an Attack on Democracy (Macdonald-Laurier Institute November 2014); Dwight Newman, Be Careful What You Wish for: Why Some Versions of the “Social Licence” are Unlicensed and May Be Anti-social (Macdonald-Laurier Institute November 2014)). However, the tone of the press commentary risks turning the idea of an SLO into a battleground rather than a context within which reciprocally beneficial practice can emerge: Ross McKitrick, ‘Let’s stop pretending ‘social licence’ is an actual thing’, Financial Post, 20 April 2016; Goldy Hyder, ‘The ‘social licence’ myth’, National Post, 4 October 2016; Jaana Woiceshyn, ‘Snub the ‘social licence’ scam’, National Post, 23 August 2016; Jaana Woiceshyn, ‘Business Needs Freedom and Not a “Social License” to Operate’, Capitalism Magazine, 28 January 2019. See generally Gunster and Neubauer, From Public Relations to Mob Rule: Media Framing of Social Licence in Canada.
- 26.
Pierre Bourdieu, The Force of Law: Toward a Sociology of the Juridical Field, translated by Richard Terdiman, Hastings Law Journal, 1987, Vol. 38(5), 805–853.
- 27.
The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, The Financial Crisis Inquiry Commission, January 2011.
- 28.
Adam Tooze, Crashed: How a Decade of Financial Crises Changed the World (Allen Lane 2018).
- 29.
The Act establishes the UK authorisation regime for firms wishing to engage in investment or financial business.
- 30.
Timothy Macklem, Law and Life in Common (Oxford University Press 2015). In the context of the SLO, for example, Brueckner and Eabrasu, Pinning Down the Social License to Operate (SLO): The Problem of Normative Complexity, identify a gap between statutory licensing regimes and legitimacy for a commercial project (giving the example of the Adani Group Carmichael mining project in Australia).
- 31.
Investment research has begun to pick up on the damage that can be done to a mining business (and potentially those investing in it) if it fails to obtain and maintain a social licence. See for example, Social License to Operate: The Relevance of Social License to Operate for Mining Companies, Schroders Research Paper, July 2012, https://www.schroders.com/staticfiles/schroders/sites/americas/us%20institutional%202011/pdfs/social-licence-to-operate.pdf (accessed 1 April 2019).
- 32.
See, for example, the Code of Hammurabi, a collection of rules compiled towards the end of the forty-two year reign of Hammurabi, sixth ruler of the first Dynasty of Babylon (1792–1750 BC): Martha T. Roth, Law Collections from Mesopotamia and Asia Minor (Scholars Press, Atlanta, 1995) 71. See also William Blair, ‘Reconceptualising the Role of Standards in Supporting Financial Regulation’, in Reconceptualising Global Finance and Its Regulation, eds. Ross P. Buckley, Emilios Avgouleas and Douglas W. Arner (Cambridge University Press 2016), 442.
- 33.
What is banking for?, remarks by Baroness Onora O’Neill, Federal Reserve Bank of New York, 20 October 2016.
- 34.
In the same interview for Women’s Own, she also referred to a tapestry of human relationships in a way that bears a resemblance to aspects of the definition of ‘society’, provided below.
- 35.
Anthony Giddens and Philip W. Sutton, Essential Concepts in Sociology (Polity Press 2017), 20, 117.
- 36.
Macklem, Law and Life in Common, 194.
- 37.
For most of the twentieth century, sociologists primarily associated the idea of society with the community connected with a nation sate. However, with the advance of globalisation, that picture has become more nuanced.
- 38.
International law is a system of international rules, distinct from the law of any individual state. It does not have direct effect in individual states. From an individual state perspective, the application of international law is subject to the law of that state. However, from the perspective of international law, a state should comply with its international legal obligations, even if that involves the state concerned amending its law to bring that about. Particularly in the case of the financial services sector, these ‘hard’ law standards are often accompanied by ‘softer’ international standards in the form of memoranda and statements of principles promulgated by international bodies that are not legally binding, but are nonetheless highly authoritative.
- 39.
Protect, Respect and Remedy: a Framework for Business and Human Rights, UN Human Rights Council A/HRC/8/5 7 April 2008, paragraph 54; Karin Buhmann, Public Regulators and CSR: The ‘Social Licence to Operate’ in Recent United Nations Instruments on Business and Human Rights and the Juridification of CSR, Journal of Business Ethics, 2016, Vol. 136(4), 699–714; Sally Wheeler, Global Production, CSR and Human Rights: The Courts of Public Opinion and the Social License to Operate, International Journal of Human Rights, 2015, Vol. 19(6), 757–778.
- 40.
Bear Creek Mining Corporation v Republic of Peru, International Centre for Settlement of Investment Disputes Case No ARB/14/21, Award (30 November 2017), paragraph 406. The ICSID was established by the 1966 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, a multilateral treaty formulated by the executive directors of the World Bank.
- 41.
I am grateful to Elise Ruggeri Abonnat for this observation. See also, Mihaela-Maria Barnes, The ‘Social License to Operate’: An Emerging Concept in the Practice of International Investment Tribunals, Journal of International Dispute Settlement, 2019, Vol. 10, 328–360.
- 42.
David Vogel, Private Global Business Regulation, Annual Review of Political Science, 2008, Vol. 11(1), 261–282, 266.
- 43.
Discussion of the concept of a ‘social licence to operate’ often seems to proceed on the basis that those licensed are not part of the group giving the licence, leading to a sense of ‘them’ and ‘us’.
- 44.
Andrew Crane, Dirk Matten and Jeremy Moon, Corporations and Citizenship (Cambridge University Press 2008), 17 et seq.
- 45.
Giddens and Sutton, Essential Concepts in Sociology, 194.
- 46.
Michael E. Bratman, ‘The Intentions of a Group’, in The Moral Responsibility of Firms, eds. Eric Orts and Craig Smith (Oxford University Press 2017).
- 47.
For example, Melanie (Lian) Dare, Jacki Schirmer and Frank Vanclay, Community Engagement and Social Licence to Operate, Impact Assessment and Project Appraisal, 2014, Vol. 32(3), 188–197.
- 48.
Geert Demuijnck and Björn Fasterling, The Social Licence to Operate, Journal of Business Ethics, 2016, Vol. 136(4), 675–685; Mather and Fanning, Social Licence and Aquaculture: Towards a Research Agenda.
- 49.
Transforming culture in financial services, speech by Andrew Bailey while Chief Executive of the Financial Conduct Authority, 19 March 2018.
- 50.
As noted above at note 12, commentary on the SLO concept often seems to distinguish between a ‘social licence’ and a ‘legal licence’. This may partly result from the origins of the SLO in local project management. However, it is not clear why one would not treat the rules and regulations a society applies to a business as part of the permission being given.
- 51.
Again, this puts to one side for the present the question of how far regulators are pursuing the public interest and the extent to which power structures can be dominated by particular interest groups; see, for example, Mike Feintuck, ‘Regulatory Rationales Beyond the Economic: In Search of the Public Interest’, in The Oxford Handbook of Regulation, eds. Robert Baldwin, Martin Cave and Martin Lodge (Oxford University Press 2011).
- 52.
The polarisation of politics in many western jurisdictions in particular may raise a question about whether the communities in those jurisdictions are capable of shared ends. However, the fact that there is disagreement seems to suggest that, lying somewhere behind these debates, there is something worth disagreeing about; some ultimate end.
- 53.
In the case of the idea of an SLO see Moffat, et al., The Social Licence to Operate: A Critical Review, 480, 481.
- 54.
Richard Parsons and Kieren Moffat, Integrating Impact and Relational Dimensions of Social Licence and Social Impact Assessment, Impact Assessment and Project Appraisal, 2014, Vol. 32(4), 273–282, 274 (talking of the social licence to operate in mining).
- 55.
A risk which seems to have materialised in some of the debates on the ‘social licence to operate’ in Australia and Canada, mentioned above.
- 56.
David George, Preference Pollution: How Markets Create the Desires We Dislike (University of Michigan Press 2004).
- 57.
Hans Bernhard Schmid, ‘The Feeling of Being in a Group: Corporate Emotions and Collective Consciousness’, in Collective Emotions, eds. Christian von Scheve and Mikko Salmela (Oxford University Press 2014).
- 58.
Gunster and Neubauer, From Public Relations to Mob Rule: Media Framing of Social Licence in Canada.
- 59.
Moffat, et al., The Social Licence to Operate: A Critical Review; Sara Bice, What Gives You a Social Licence? An Exploration of the Social Licence to Operate in the Australian Mining Industry, Resources, 2014, Vol. 3(1), 62–80.
- 60.
Gunningham, Kagan and Thornton, Social License and Environmental Protection: Why Businesses Go Beyond Compliance, 309.
- 61.
Subject to various caveats, including those in note 13 above.
- 62.
Capital that a firm is required to hold which exceeds a statutory minimum. The amount is based on the firm’s own assessment of the risks in its business, but is agreed with its regulator. See in particular Article 73 of Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms.
- 63.
As to how far the resulting standards can be thought of as ‘social’, this again puts to one side the possibility of regulators developing their own agendas or being unduly influenced by interest groupings, or simply not understanding their own rules or the activities they are seeking to regulate.
- 64.
https://ec.europa.eu/info/system/files/161028-press-release_en.pdf (accessed 13 August 2019).
- 65.
In the case of corporate codes, see Lorenzo Sacconi, The Social Contract of the Firm: Economics, Ethics and Organisation (English edition, Springer 2000), 3–4. The content of industry and corporate codes may also be influenced by shareholders and other commercial interests through discussions with professional advisors, the expectations of auditors, analysts and customers, the standards applied by ratings agencies, dialogues with NGOs and broader social commentary. See, for example, Vogel, Private Global Business Regulation.
- 66.
For example, in relation to professional codes, see Donald Nicholson, Making Lawyers Moral? Ethical Codes and Moral Character, Legal Studies, 2005, Vol. 25(4), 601–626, 604.
- 67.
To be credible, they will need to set standards sufficiently close to those that might otherwise be introduced. Vogel, Private Global Business Regulation, 265.
- 68.
Julia Black, Mapping the Contours of Contemporary Financial Services Regulation, Journal of Comparative Law Studies, 2002, Vol. 2(2), 253–287. The Financial Conduct Authority takes account of market codes in considering whether staff in financial firms have complied with the principle that they should observe proper standards of market conduct, and has a regime for recognising market codes for this purpose: https://www.fca.org.uk/about/recognised-industry-codes (accessed 13 August 2019). At the time of writing, it has so far recognised the Global FX Code and the UK Money Markets Code. Similarly, the Financial Conduct Authority maintains a list of privately originated guidance; where a firm has acted consistently with the guidance, the FCA will treat that as helping to establish compliance with related FCA regulations: https://www.fca.org.uk/about/rules-and-guidance/confirmed-industry-guidance (accessed 13 August 2019). See also the ABI Code of Good Practice for Unit Linked Funds (2014), which it describes as having been revised by an ABI working group in consultation with the FCA and a wide range of stakeholders and which addresses an area where the FCA has not made detailed rules:, https://www.abi.org.uk/news/news-articles/2014/05/abi-publishes-guide-to-good-practice-for-unit-linked-funds/ (accessed 13 August 2019).
- 69.
For example, the UK Money Markets Code, the Global FX Code and the Global Precious Metals Code, The Basel Committee on Banking Supervision Principles for the Sound Management of Operational Risk, June 2011 and The Model Code of Ethics, a report of the SRO consultative committee of IOSCO, June 2006.
- 70.
In codes we trust – Redefining the social licence for financial markets, speech by Sarah John, Head of the Sterling Markets Division of the Bank of England, 13 June 2017.
- 71.
Vogel, Private Global Business Regulation.
- 72.
In the context of the social licence to operate for mining see, for example, Sara Bice, What Gives You a Social Licence? An Exploration of the Social Licence to Operate in the Australian Mining Industry.
- 73.
In the case of CSR, see Tareq Emtairah and Oksana Mont, Gaining Legitimacy in Contemporary World: Environmental and Social Activities of Organisations, International Journal of Sustainable Society, 2008, Vol. 1(2), 134–148.
- 74.
Frances Bowen, Marking Their Own Homework: The Pragmatic and Moral Legitimacy of Industry Self-Regulation, Journal of Business Ethics, 2019, Vol. 156(1), 257–272; Richard Parsons and Kieren Moffat, Constructing the Meaning of the Social Licence, Social Epistemology, 2014, Vol. 28(3–4), 340–363, 344.
- 75.
Vogel, Private Global Business Regulation, 266.
- 76.
For example, the database maintained by the International Trade Centre, a multilateral aid agency operating under the umbrella of the United Nations contains over 250 of them, https://sustainabilitymap.org/standards?q=eyJzZWxlY3RlZENsaWVudCI6Ik5PIEFGRklMSUFUSU9OIn0%3D (accessed 26 October 2019).
- 77.
The Global Reporting Initiative, for example, responded to the Australian corporate governance proposals discussed above, https://www.asx.com.au/documents/regulation/GRI.pdf
- 78.
In the context of the SLO, Gehman, Lefsrud and Fast, Social License to Operate: Legitimacy by Another Name?; Vogel, Private Global Business Regulation, 267, 276.
- 79.
Amartya Sen, The Idea of Justice (Allen Lane 2009), 335 et seq.
- 80.
See, for example, the response of the Australian Institute of Directors to the Australian corporate governance proposals above which provides a hypothetical example at Sect. 4.3: https://www.asx.com.au/documents/regulation/Australian-Institute-of-Company-Directors.pdf
- 81.
For example, Moffat and Zhang, The Paths to Social Licence to Operate: An Integrative Model Explaining Community Acceptance of Mining; Airong Zhang, Thomas G. Measham and Kieren Moffat, Preconditions for Social Licence: The Importance of Information in Initial Engagement, Journal of Cleaner Production, 2018, Vol. 172, 1559–1566. See further at Sect. 4.7, below.
- 82.
- 83.
Peter Edwards, et al., Trust, Engagement, Information and Social Licence – Insights from New Zealand, Environmental Research Letters, 2019, Vol. 14(2), 024010.
- 84.
Brueckner and Eabrasu, Pinning Down the Social Licence to Operate (SLO): The Problem of Normative Complexity. But see Demuijnck and Fasterling, The Social Licence to Operate, who seek to establish its normative content based on contractarian principles, and Justine Lacey, Peter Edwards and Julian Lamont, Social Licence as Contract: Procedural Fairness and Agreement-Making in Australia, Forestry, 2016, Vol. 89(5), 489–499 based on procedural justice.
- 85.
Corresponding with the sort of approach taken by revealed preference theory.
- 86.
Transforming culture in financial services, Bailey.
- 87.
Graham Oddie, ‘Desire and the Good: In Search of the Right Fit’, in The Nature of Desire, eds. Federico Lauria and Julien A. Deonna (Oxford University Press 2017); Simon Blackburn, Ruling Passions (Oxford University Press 1998), 66.
- 88.
See Building real markets for the good of the people, Carney.
- 89.
Ibid.
- 90.
Ethics and finance – aligning financial incentives with societal objectives, speech by Christine Lagarde, Managing Director of the International Monetary Fund, 6 May 2015.
- 91.
Michael J. Sandel, Justice (Farrar, Straus and Giroux 2009), 19.
- 92.
The concept of ‘legitimacy’ may also help to make sense of the idea of a social licence. However, in the context of the SLO, it is often used in ways that tend to treat it as being about whether a company’s activities are socially perceived as acceptable. By contrast, justice concerns the right ordering of relations: it sets a normative standard by reference to which acceptability may be measured. Connecting the licence with justice therefore seems more consistent with the apparently aspirational dimension of the licence. The aspiration behind talk of a social licence is not primarily that markets should be socially perceived as acceptable, but that they should realise certain desired ends, the result of which should be greater social trust. See further the brief discussion at Sect. 4.8.3 below.
- 93.
Amartya Sen, The Idea of Justice, 337. The work is under way. See, for example Lisa Herzog ed. Just Financial Markets? Finance in a Just Society (Oxford University Press 2017).
- 94.
Amartya Sen, The Idea of Justice, 414.
- 95.
This connection seems evident from attempts to embed the Universal Declaration of Human Rights (the over-arching principle of which is human dignity and equal and inalienable rights, as noted in Chap. 3) in everyday business practice (see Sect. 3.2.4). These have drawn on the idea of a ‘social licence’ granted in the ‘courts of public opinion’ which could be lost if dignity is not upheld. See also Rosa M. Lastra and Alan H. Brener, ‘Justice, Financial Markets, and Human Rights’, in Just Financial Markets? Finance in a Just Society, ed. Lisa Herzog (Oxford University Press 2017), 48 et seq. However, highlighting the connection here is not intended to suggest that the social licence is essentially a matter of human rights. Adam Smith also made a connection between the value of the human person and justice (see Sect. 3.2.4).
- 96.
Ronald Dworkin, Justice for Hedgehogs (Belknap Press of Harvard University Press 2011), 423, writing of justice provided by government as beginning with equal treatment and respect. See also Michael S. Pritchard, Human Dignity and Justice, Ethics, 1972, Vol. 82(4), 299–313.
- 97.
Law that has been formally articulated.
- 98.
The nature of the relationship between law and justice, and morality more generally, has been a subject of prolonged debate, most famously in the exchanges between H.L.A. Hart, (see especially The Concept of Law (Clarendon Press Oxford 1963)), Lon Fuller (see especially The Morality of Law (Yale University Press 1964)) and Ronald Dworkin (see especially Law’s Empire (Belknap Press of Harvard University Press 1986)). There is not the scope to explore those discussions here.
- 99.
Woiceshyn, ‘Snub the ‘social licence’ scam’.
- 100.
Work on human values is a field in its own right and a detailed discussion lies beyond the scope of the current exercise. The following draws particularly on the influential work of Shalom Schwartz and his collaborators. However, he is by no means the only person to have highlighted a consistency between different cultures in what humans value. See, for example, Oliver Scott Curry, Daniel Austin Mullins and Harvey Winehouse, Is It Good to Cooperate? Testing the Theory of Morality-as-Cooperation in 60 Societies, Current Anthropology, 2019, Vol. 60(1), 47–69; Jesse Graham, et al., Mapping the Moral Domain, Journal of Personality and Social Psychology, 2011, Vol. 101(2), 366–385; Katherine Dahlsgaard, Christopher Peterson and Martin E. P. Seligman, Shared Virtue: The Convergence of Valued Human Strengths Across Culture and History, Review of General Psychology, 2005, Vol. 9(3), 203–213. The authors of these studies advance various explanations for the patterns they observe, with evolutionary processes as a common theme. The aim here is to draw attention to the patterns themselves as evidence of what humans consider important in the way they relate to each other rather than their origins. As discussed in Chap. 3, it is reasonable to suppose that underlying motivations could be self-regarding and altruistic, and that there could be a reciprocal point at which the two become largely indistinguishable. These studies are generally descriptive rather than attempting to advance theories of what is observed is ‘good’ or ‘bad’, ‘right’ or ‘wrong’. However, they are nonetheless suggestive of what people might think of as the normative content of a social licence.
- 101.
For example, see Ethics and Finance – Aligning Financial Incentives with Societal Objectives, Lagarde.
- 102.
Based on the description of values developed by Shalom Schwartz for the purposes of his theory of basic values: Shalom H. Schwartz, Les Valeurs de Base de la Personne: Théorie, Mesures et Applications, Revue Française de Sociologie, 2006, Vol. 47(4), 929–969, 931.
- 103.
Shalom H. Schwartz and Anat Bardi, Value Hierarchies Across Cultures: Taking a Similarities Perspective, Journal of Cross-Cultural Psychology, 2001, Vol. 32(3), 268–290.
- 104.
Curry, Mullins and Winehouse, Is it Good to Cooperate? Testing the Theory of Morality-as-Cooperation in 60 Societies (reciprocity features more strongly in cross-cultural comparisons than fairness); Jesse Graham, et al., Mapping the Moral Domain; Dahlsgaard, Peterson and Seligman, Shared Virtue: The Convergence of Valued Human Strengths Across Culture and History.
- 105.
Linda Klebe Treviño, Niki A. den Niewenboer and Jennifer J. Kish-Gephart, (Un)Ethical Behavior in Organizations, Annual Review of Psychology, 2014, Vol. 65, 635–660, 637.
- 106.
Aristotle, W. D. Ross and Lesley Brown, The Nicomachean Ethics (Oxford University Press 2009), Book V.1, 1130a.
- 107.
For example, Moffat and Zang, The Paths to Social Licence to Operate: An Integrative Model Explaining Community Acceptance of Mining; Sara Bice and Kieren Moffat, Social Licence to Operate and Impact Assessment, Impact Assessment and Project Appraisal, 2014, Vol. 32(4), 257–262, 261; Boutilier, Frequently Asked Questions About the Social Licence to Operate, 264; Edwards, et al., Trust, Engagement, Information and Social Licence – Insights from New Zealand; Cindy Gallois, et al., The Language of Science and Social Licence to Operate, Journal of Language and Social Psychology, 2017, Vol. 36(1), 45–60; Dare and Vanclay, Community Engagement and Social Licence to Operate; Morrison, The Social License: How to Keep Your Organization Legitimate, 62 et seq.
- 108.
Andrew Haldane, ‘Book Review: Other People’s Money by John Kay’, Prospect, 17 September 2015. The Salz Review of Barclays Business Practices, April 2013, states that a bank’s licence to operate is built on the trust of its customers.
- 109.
The Great Divide, speech by Andrew Haldane, Executive Director and Chief Economist of the Bank of England, 18 May 2016. See also, Turning back the tide, speech by Mark Carney, Governor of the Bank of England, 29 November 2017; In codes we trust – Redefining the social licence for financial markets, John; Challenges for financial markets, speech by John Cunliffe, Deputy Governor Financial Stability, 3 November 2016; What is banking for?, O’Neill; The future of financial reform, speech by Mark Carney, Governor of the Bank of England, Singapore 17 November 2014.
- 110.
The word ‘credit’ is derived from credere, the verb for ‘to trust’ in Latin.
- 111.
Martin Tanis and Tom Postmes, A Social Identity Approach to Trust: Interpersonal Perception, Group Membership and Trusting Behaviour, European Journal of Social Psychology, 2005, Vol. 35(3), 413–424.
- 112.
Roger C, Mayer, James H. Davis and F. David Shoorman, An Integrative Model of Organizational Trust, Academy of Management Review, 1995, Vol. 20(3), 709–734, 712.
- 113.
Bret Crane, Revisiting Who, When and Why Stakeholders Matter: Trust and Stakeholder Connectedness, Business & Society, February 2018, https://doi.org/10.1177/0007650318756983; Heikki Ervasti, Antti Kouvo and Takis Venetoklis, Social and Institutional Trust in Times of Crisis: Greece 2002–2011, Social Indicators Research, 2019, Vol. 141(3), 1207–1231; Ginés Navarro-Carrillo, et al., Do Economic Crises Always Undermine Trust in Others? The Case of Generalized, Interpersonal, and In-group Trust, Frontiers in Psychology, October 2018, Vol. 9, Article 1955; Chase Foster and Jeffry Frieden, Crisis of Trust: Socio-Economic Determinants of Europeans’ Confidence in Government, European Union Politics, 2017, Vol. 18(4), 511–535; Carin van der Cruijsen, Jakob de Haan and David-Jan Jansen, Trust and Financial Crisis Experiences, Social Indicators Research, 2016, Vol. 127(2), 577–600.
- 114.
This expression is used in various ways, but here it is intended as a reference to broad-based social benefit (rather than, for example, the more technical sense in which it has been used by Pierre Bourdieu).
- 115.
Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (Simon and Schuster 1995), 27 et seq.; Karen Jones, ‘Distrusting the Trustworthy’, in Reading Onora O’Neill, eds. David Archard, et al., (Routledge 2013); Stephanie Chaly, et al., Misconduct Risk, Culture, and Supervision, Federal Reserve Bank of New York, December 2017, 11.
- 116.
Natalie Gold, ‘Trustworthiness and Motivations’, in Capital Failure, eds. Nicholas Morris and David Vines (Oxford University Press 2014). There is an alternative view, which sees trustworthiness as being self-interested. On the basis of Chap. 3, it seems more realistic to expect that a mixture of self-interested and other-regarding motivations is involved to the extent that the two may become largely inseparable in the context of relationships of reciprocity. However, relationships may fall along a spectrum from ‘thick’ or ‘strong’ trust (where other-regardingness is a strong element) through to ‘thin’ or ‘weak’ trust based on an experience of the self-interest of the person trusted reliably causing them to meet needs of the person relying upon them. The problem with the latter is that if the demands of self-interest change, it cannot be relied upon.
- 117.
Moffat and Zhang, The Paths to Social Licence to Operate: An Integrative Model Explaining Community Acceptance of Mining, 63.
- 118.
Mayer, Davis and Shoorman, An Integrative Model of Organizational Trust. The authors were at pains to point out that their work addresses an organisational context and not, for example, broader social systems. However, there is no obvious reason why their insights should not be of broader application.
- 119.
Martin Tanis and Tom Postmes, A Social Identity Approach to Trust: Interpersonal Perception, Group Membership and Trusting Behaviour, 414; Ananthi Al Ramiah and Miles Hewstone, Intergroup Contact as a Tool for Reducing, Resolving and Preventing Intergroup Conflict: Evidence, Limitations and Potential, American Psychologist, 2013, Vol. 68(7), 527–542.
- 120.
Luigi Guiso, Paola Sapienza and Luigi Zingales, ‘Civic Capital as the Missing Link’, in Handbook of Social Economics Vol. 1A, eds. Jess Benhabib, Alberto Bisin and Matthew O. Jackson (North-Holland 2011).
- 121.
- 122.
See, for example, Paul de Grauwe, The Limits of the Market: The Pendulum Between Government and Market (Oxford University Press 2017).
- 123.
Richard Parsons, Justine Lacey and Kieren Moffat, Maintaining Legitimacy of a Contested Practice: How the Minerals Industry Understands Its Own ‘Licence to Operate’, Resources Policy, 2014, Vol. 41, 83–90, 85.
- 124.
For example, Boutilier, Frequently Asked Questions About the Social Licence to Operate, 269–270.
- 125.
Parsons and Moffat, Constructing the Meaning of the Social Licence.
- 126.
See for example Marc Orlitzky, The Politics of Corporate Social Responsibility or: Why Milton Friedman Has Been Right All Along, Annals in Social Responsibility, 2015, Vol. 1(1), 5–29.
- 127.
Owen and Kemp, Social Licence and Mining: A Critical Perspective, 35, highlight corporate fear in the context of the social licence to operate that expectations could spiral out of control.
- 128.
Gwyn Morgan, former CEO of EnCana quoted in Gunster and Neubauer, From Public Relations to Mob Rule: Media Framing of Social Licence in Canada, 12.
- 129.
This danger, and the potential for the SLO to provide a framework for fruitful dialogue has also been recognised: Moffat, et al., The Social Licence to Operate: A Critical Review, 481.
- 130.
John Rawls, A Theory of Justice (original edn, Harvard University Press 1971) in which he first advanced a theory of justice based on the concept of fairness. He subsequently refined it considerably.
- 131.
For one of the most well-known theories, see Thomas W. Dunfee and Thomas Donaldson, Ties That Bind: A Social Contracts Approach to Business Ethics (Harvard Business School Press 1999).
- 132.
Morrison, The Social License: How to Keep Your Organization Legitimate; Demuijnck and Fasterling, The Social Licence to Operate, Journal of Business Ethics; Lacey, Edwards and Lamont, Social Licence as Contract: Procedural Fairness and Agreement-Making in Australia; Dare, Schirmer and Vanclay, Community Engagement and Social Licence to Operate.
- 133.
There is a divergence between ‘contractarian’ approaches that emphasise self-interest and ‘contractual’ approaches that emphasise what is necessary to secure human dignity.
- 134.
Rawls is different in that he places individuals behind a ‘veil of ignorance’, where they know nothing of their social identity, to provide a context in which self-interest would lead them to commit to ‘fairness for all’ on the basis that, without knowing their social identity, it is the logical thing to do.
- 135.
John Hasnas, The Normative Theories of Business Ethics: A Guide for the Perplexed, Business Ethics Quarterly, 1998, Vol. 8(1), 19–42.
- 136.
For example, Lorenzo Sacconi, The Social Contract of the Firm: Economics, Ethics and Organisation. Revealingly, it also featured in an early attempt by one UK regulator in the aftermath of the financial crisis to explain what had gone wrong and the steps needed to ‘redraw’ the social contract for banking, which was presented as largely a matter for regulators (thereby also restating market-state dualism in the form of what was effectively a ‘regulatory contract’): see Macro and microprudential supervision, speech by Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, 29 June 2011.
- 137.
Gehman, Fast and Lefsrud, Social License to Operate: Legitimacy by Another Name?
- 138.
While the concept of legitimacy is applied to business organisations, it grew out of attempts to understand the relationship between political authority and the governed. It is often taken to have originated with Max Weber who used the idea to understand the circumstances in which political power would be perpetuated, based on people’s beliefs about why they should obey, legitimacy being distinguished from coercion and self-interest. This is distinct from the question of the standards by which the legitimacy of an authority ought to be assessed (for example, whether a regime is ‘just’). However, others have approached it from this ‘normative’ perspective rather than using Weber’s ‘descriptive’ approach. Some, such as David Beetham, have taken a course between the two. He highlights the fact that beliefs about legitimacy are likely to be based on an assessment of a regime by reference to underlying beliefs: ‘A given power relationship is not legitimate because people believe in its legitimacy, but because it can be justified in terms of their beliefs… We are making an assessment of the degree of congruence … between a given system of power and the beliefs, values and expectations that provide its justification.’ David Beetham, The Legitimation of Power (2nd edn, Palgrave Macmillan 2013), 11.
- 139.
Mark C. Suchman, Managing Legitimacy: Strategic and Institutional Approaches, Academy of Management Review, 1995, Vol. 20(3), 571–610, 574; Gehman, Lefsrud and Fast, Social License to Operate: Legitimacy by Another Name? Suchman’s definition of organisational legitimacy echoes Beetham’s. However, it seems to leave untested the soundness of the underlying beliefs, values and expectations on the basis of which an assessment of legitimacy is made; for example, the extent to which they might have been manipulated or rest on unstable assumptions. The populations of at least some of the great powers prior to the First World War might have considered the activities of their respective governments legitimate even though they were to result in slaughter on a previously inconceivable scale. See also Morrison, The Social License: How to Keep Your Organization Legitimate, especially Chap. 5.
- 140.
In other words, the emphasis in discussion of the SLO is often empirical (assessing whether people treat a business as legitimate) more than normative (assessing whether that perception is indeed justified), a distinction usefully teased out in the context of the social licence to operate by Demuijnck and Fasterling, The Social Licence to Operate.
- 141.
Christopher A. Thomas, The Uses and Abuses of Legitimacy in International Law, Oxford Journal of Legal Studies, 2014, Vol. 34(4), 729–758.
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Rouch, D. (2020). The Social Licence for Financial Markets. In: The Social Licence for Financial Markets. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-40220-4_4
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