Social License and Publicness
67 Pages Posted: 20 Jun 2019
Date Written: June 13, 2019
This article deploys the sociological theory of social license, or the acceptance of a business or organization by the relevant communities and stakeholders, in the context of the board of directors and corporate governance. Corporations are generally regulated and treated as “private” actors, and corporate law falls into the zone of “private” law. The construct of the corporation as “private” allows for considerable latitude. Yet, corporate decision makers are the beneficiaries of economic and political power and, the decisions they make have impacts that extend well beyond the boundaries of the entities they represent. Using Wells Fargo and Uber as case studies, this article explores, how the failure to account for the public nature of corporate actions, regardless of whether “legal” license exists, can result in the loss of “social” license through publicness, or the interplay between inside corporate governance players and the outside actors who report on, recapitulate, reframe and, in some cases, control the company’s information and public perception. The theory of social license is that businesses (and other entities) exist with permission from the communities in which they are located, as well as with permission from larger communities and stakeholders. In this sense, businesses are social, not just economic, institutions and, thus, they are subject to public accountability and, at times, public control. Social license derives not from legally-granted permission, but instead from the development of legitimacy, credibility, and trust within the relevant communities and stakeholders. It can prevent demonstrations, boycotts, shut downs, negative publicity, and the increases in regulation that are a hallmark of publicness – but it must be earned with consistent trustworthy behavior and is bilateral, not unilateral. As a result, the company’s social license can be a tool for risk management in particular and managing publicness more generally.
By developing and deploying social license and publicness in the context of board decision-making, this article adds to the discussions in the literature from other disciplines, like for example the economic theory on reputational capital, and provides boards with a set of standards with which to engage and to help address the publicness of the companies they represent. Thus, social license can become part of proactive cost benefit decision making. As a result, discussing, weighing, and developing social license is not just in the zone of what boards can do, but is something that they should do. Indeed, the failure to do so can have dramatic business consequences.
Keywords: corporate law, corporate governance, publicness, social license, regulation, economic theory, public-private
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