‘The imperative for companies to earn their social license appears to be rising.’
So concludes McKinsey in this valuable assessment of what is really going on in the ESG debate – which means that recognition in the business world of the importance of social licence is rising too.
McKinsey’s conclusions chime with my own work on the subject, probably the most in-depth assessment of the social licence currently available: The Social Licence For Financial Markets: Reaching For The End and Why It Counts (Palgrave Macmillan 2020), responding to a speech on the topic by Mark Carney who wrote the foreword.
Like McKinsey, I identify society’s licence as something that companies need to respond to if they are to flourish. However, I also have two further observations on the McKinsey analysis, both of which are covered in my book. They concern how recognising that there’s social licence for business provides a framework which can actually help companies in making their response. McKinsey’s ‘corporate oxygen’ metaphor, above, is spot on because it alludes to each of these as well.
- First, the idea of a social licence provides a kind of mental framework or narrative which focuses attention on the goals of business (and hence also its meaning). In other words, it can provide what is needed to engage hearts and minds so influencing individual behaviour and, over time, shaping culture and character and so conduct in ways that reach beyond the narrow confines of ‘homo economicus’ and the more myopic forms of ‘shareholder value’. So, it has the potential to take behaviour in directions that balance business and societal needs more effectively in ways that can help businesses.
- Secondly, environmental and social challenges, including strengthening social trust, are systemic so that it is not always easy for a single company to improve its ‘social licence position’ if other companies are not moving in a similar direction. Because the idea of a social licence speaks to the whole commercial and financial system as well as its parts, it can provide a system-wide coordinating mechanism for change across the multiple individuals, groups and institutions that make up commercial and financial markets.
The consensus among those I speak to is that the challenges facing business and finance operators are growing, diversifying and becoming more complex. Greater recognition that markets operate subject to a social licence can provide a powerful framework for navigating the way ahead.