The language of social licence is becoming more widely applied in business, especially in the public company arena, and is seen by some as the answer to regulator and community concerns over company conduct. It is, however, not universally accepted in Boardrooms and fails to address the underlying causes of ‘poor business conduct and performance’.
Active Knowledge Question:
Do you believe your business requires a social licence to operate?
The Social Licence
The language and concept of social licence are not new and traditionally have been present in projects where that project would significantly impact a local community – think mining in remote areas and the communities living in those areas.
Ensuring the local communities approve, support and benefited from the project has always been essential to the success of any project. And some companies have taken this more seriously than others and performed better in winning and sustaining their ‘community licence’ to operate.
Over the past decade, with the rise of social media, the ability for attention to be shined on any company that fails to meet community expectation has increased exponentially.
Within Australia, recent Royal Commissions – government-sponsored independent enquires – have highlighted the failings of large corporations in acting legally and ethically. Moreover, globally, many companies are facing challenges to their business models – think Facebook and Google. There is intense light being shined on the conduct of businesses around the world.
In response to and in addressing these concerns, what is now being called for is a much broader and universal application of the concept of social licence – companies actively seeking and maintaining a permission to operate.
A social licence is seen as a stepping stone to rebuilding the trust that communities have lost in businesses and their leaders.
Of course, trust is fundamental to competitiveness for any business, but I am not sure that many business leaders recognise where that trust must rest – it starts with employees and their trust in leaders.
And that begs the question, as a society ‘in what do you trust our business leaders’?
The Profit-Bias
Where social licence fails is that it does not address the profit-bias that exists almost universally in businesses, and the bigger they become, it seems the stronger and deeper this bias grows.
A social licence will never succeed where a profit-bias exists. It is literally the band aid that will not stick. The starting point is to shine the light on the fallacy of the profit-bias. Further, weaken and remove the profit-bias and a social licence will not be necessary, and trust in business leaders will be a natural outcome.
The greatest fallacy of our time is that businesses exist to profit – to profiteer.
Many would argue that the responsibility of boards and management is to maximise the profit of a business for shareholders. But a profit-first motive seeds selfishness, self-interest, politics and short-termism. Making profit a motive for being in business literally saps the competitive strength from it. And herein lies the fallacy, profit as a motive will deliver less profit for a business than otherwise could be achieved.
Make profit your motive for being in business, and you will spend every day solving problems, fighting fires and listening to everyone else’s complaints. But understand how to make your business competitively fit, and profit will be a natural outcome, and all the problems that a ‘profit-first’ motive creates will disappear.
Businesses are made to compete.
Understand what that means, make that the motive of your business and your business will never be the same.
Profit is an outcome, an outcome of competing well. But the profit-bias draws leadership to look at and focus on the outcome and not the catalysts that deliver that outcome.
All the ills that a social licence is seeking to address arise from the profit-bias. They arise from leadership not pausing, recognising and focusing on what actually, at its core, generates the profits within a business.
To Compete
Businesses exist to compete. They exist to provide the greatest value they can to the community of customers they seek to serve. It is around this value that they compete. If they do this well, great profit is one of the outcomes.
The motive of every business should be to compete. But few leaders seem to understand what actually drives the competitiveness of their business. They look through the lens of profit and see tangible and intangible assets and believe in these lie their capital value, the drivers of their profits. But they are wrong, the catalysts are far deeper than what they can record on their balance sheets.
In every business, at its core, is a competitive engine. A dynamic that will determine how successful it can be. The engine creates energy throughout the entire business, impacting its strength to compete and thrive.
No matter how young or old, no matter how large or small the business is, even if you’re not aware of its existence, this competitive engine sets the floor and ceiling to success. It holds the answer to your business’ performance and performance problems.
The output of this competitive engine is determined by the dynamics that exist between each of its elements, some of which are the:
- Worthiness of your leadership team.
- Clarity and strength of purpose.
- Glue and passion created through your business’s culture and vision.
- Alignment between customer value and capability.
A business that understands and focuses on its competitive engine is also one that is highly profitable and compounds capital value. Not by putting profit or capital value first but by ensuring the dynamics of the competitive engine are never neglected.
Purpose and Motive
Purpose is the cornerstone and reference point for the existence of any business. Real competitive strength lies in that purpose, and everything else builds on it. Purpose reveals opportunities, ensures alignment, and a compounding of effort.
Purpose is founded in meeting customer needs.
Purpose is born in the creation of a business, the seeding of the original idea that launched that business. Yet it is often forgotten as the founder’s influence wanes or discounted as new leadership is appointed. In the absence of a founding purpose, one can be inadvertently created, or profit inserted in its absence.
Without what I would describe as a righteous purpose, a business will often become directionless and have no other compass but profit.
Rising out of and supporting purpose is motive. Bear in mind also that the core strength of any business is the combined talent and effort of all those who work within and with it. What determines the strength and impact of that core is motive. The right motive magnifies and compounds that strength, whereas the wrong motive disperses and neutralises it.
Profit as a motive for being in business is the least effective motive that leadership can set for itself and the business.
But the motive to compete, to provide the greatest value you can to that community of customers you seek to serve, to outcompete everyone else in your chosen market, that is a motive that when combined with a righteous purpose will energise your entire business.
Your business does not need a social licence. Your business needs to remember why it was created in the first place – the customer needs that it seeks to fulfil. It needs to make competing to fulfil those needs its motive. And it needs to understand and focus on the elements of its competitive engine that will uplift its ability to compete. And profit will follow.
Challenge and overcome the profit-bias that exists in your business, learn to compete well and you will take your business to an entirely new level of performance. And everyone will admire and support your business.
An entirely new level of performance.
Want to become a part of the Entrepreneurs+ Community and learn how to make your business competitively fit? Join now.
All the best in the success of your business,
Richard Shrapnel
