Mining rights vs social licence — why trust is the ultimate currency

Every mining executive knows how to secure a mining right. It may take more time than he or she would like, but there is a process to be followed. 

Far fewer know how to secure something much more valuable: trust. 

Across South Africa, billions of rands in mining investment depend not only on licences issued by the government, but on legitimacy granted by employees, communities and other stakeholders. 

Yet despite sophisticated stakeholder engagement plans, detailed social performance standards and ever-expanding ESG disclosures, conflicts between mines and communities continue to erupt with alarming regularity.

The uncomfortable truth is that many companies still confuse engagement with trust.

Mining remains central to economic activity and employment, yet many communities surrounding mines continue to face unemployment, weak public services and limited economic alternatives. Jim Cooney, a Canadian mining executive, first used the term “social licence to operate” in the late 1990s to describe the informal but consequential permission that companies require from the societies in which they operate. 

A building of trust

A statutory mining right is necessary, but it is not sufficient. The social licence to operate is neither permanent nor unconditional. It is earned through conduct and renewed through experience. 

The essential feature of that conduct is the building of trust, which is a precondition for earning the social license to operate. When in place, the social licence and trust are mutually reinforcing. 

And that is why a trusting relationship with stakeholders is good for business. When it weakens, the consequences are visible in disrupted production, delayed capital, management distraction, damaged reputation and, in the most serious circumstances, lasting human harm. When trust is strong, those risks are reduced and productivity and other outcomes may improve through enhanced collaboration and cooperation between the company and its stakeholders.

The lesson of Marikana

The events of 16 August 2012 at Marikana permanently changed the moral and strategic context in which mining companies engage labour, communities, and the state. It demonstrated that formal compliance cannot compensate for weak relationships, fragmented accountability or the failure to recognise human dignity.

Today, every listed mining company’s annual report will have a section on stakeholder engagement which seeks to reassure shareholders about the effort put into engaging those stakeholders in order to mitigate the risks that could arise.

Those stakeholders may include a range of interest groups such as traditional leaders, young people and community organisations. 

Notwithstanding companies’ extensive policies, standards and systems, conflicts and other indications of adversarial relationships between mines and their surrounding communities regularly arise. Why is that?

Asymmetry of power

It is essentially because there is often an absence of trust in these relationships. The profound asymmetry of power between companies and communities makes building that trust complex and difficult. Much of it is due to management approaches that lack the basis for achieving trust. How may that be remedied?

Consider these issues: 

First, how does the company decide which stakeholders it will engage with? Does it, as has often occurred in the mining sector, believe that traditional leaders adequately represent entire communities? Or does it maintain a live database of all who consider themselves to be affected by the company’s operations? 

Second, when a stakeholder meeting is called, who sets the agenda? Do stakeholders have the ability to influence the agenda? When they request engagement, does the company readily agree? 

Third, how does the company manage conflict that will inevitably arise at times? Have the procedures used been developed by the company alone, or jointly with its stakeholders (which is more likely to engender trust? Further, has the company made any unfulfilled promises? They often do, to resolve disputes when under pressure. But that invariably leads to problems later. 

Fourth, does the company engage only when problems arise? Or is there a programme for regular engagement? The latter will usually lead to a higher quality of trust.

Fifth, how does the company make decisions on issues that are likely to have adverse impacts on stakeholders? Is there adequate prior consultation so that those potentially affected feel that they have been properly consulted? 

Sixth, how well are the interests of all stakeholders advanced? This can be complicated, given that many groups of stakeholders have different interests, and it is likely that not all expectations can be met. Where jobs are concerned, how many from each community around the mine are employed, and is this a fair distribution? The same applies to procurement from local businesses, internships and bursaries. 

Host communities

Further, do host communities see themselves as meaningful economic participants in the value created by the mine? It is also necessary to look to the future, and for the parties to co-create that future. How do the parties plan to avoid the creation of ghost towns after the mine reaches the end of its life by developing adjacent industries and creating greater economic diversity?

A self-aware business would regularly invite an independent observer to approach each cohort of stakeholders to assess whether their perceptions match those of the company representatives responsible for stakeholder engagement. A business needs to know what it does not know. 

Marikana taught us that relationships cannot be managed through compliance alone. Trust cannot be outsourced to a department, delegated to a consultant, or manufactured through communication campaigns.

Every day, communities decide whether they believe a company is acting fairly, listening genuinely and sharing value equitably. That judgement is the real social licence to operate.

A mining right may be granted for decades. A social licence is granted one day at a time. DM