Strategic business risks: The Reputation Risk – Social licence to operate for mining companies

One of my favourite examples, when it comes to business risks, is the mining industry – given my background of almost 4 years in a TSX gold mining junior company that is running a still-permitting large scale open cast project in Romania. The most important risk – given that the deposit is proven and the technical difficulties have been alleviated, at this point, for any mining company in most countries and localities is, from my point of view, the reputational risk.

The rise of internet and social media communication and especially of mobile internet usage means that people have access to a wide range of communication tools. This factor could be perceived as good for business if it contributes to the consolidation of the company’s reputation, but it can also mean that the company is exposed to internal and external attacks. Resources have always been at the centre of wars and mining is no exception – especially when the licences legislation is to a certain extent exclusive.

Some companies or non-governmental organizations may want to force other companies off certain territories and seek to do so by influencing their reputation to the point where they cannot operate any longer due to strong local and national opposition – this is called the revocation of the social licence to operate and it is a strong reputational risk that a mining company faces when engaging communities to co-create value.

When a mining company no longer has the social licence to operate, its communication channels with key stakeholders become blocked and they are judged and sentenced based on their poor reputation. This leads to blockages in permitting, lack of employee engagement, low investor trust, low or no business outputs and a general difficulty in doing business.

The reputational risk can be mitigated by:

• focusing on the first tenet, ensuring that all stakeholders are aware that the focus of the company is an ethical one
• communicating holistically and persuasively to all interested parties in regards to its key business issues
• monitoring and successfully rebutting myths and allegations
• partnering with the local community and national key institutions and non-governmental organizations that can provide them with endorsements and monitoring assurance

Reputational risks are strategic for mining companies because their operations now rely partly on their external and internal brand, determining whether a company can continue to co-create value or will cease to operate due to a loss of social licence to operate. The sooner they start considering this risk as a strategic one, the better they will be able to handle potential threats and mitigate the risk in a less costly way.