Interviews with leading experts on our model for rating the ‘License to Operate’ have provided very positive feedback and interesting insights
In recent months, Critical Resource has met with a series of leading experts to discussLicenseSecure™, our model for assessing and supporting more strategic management of the ‘licence to operate’ for resource projects. The aim of this process from our perspective has been to gain insights to guide the development of the model going forward. Interviews were conducted on a confidential basis to aid frank discussion, but among the dozen or so experts we spoke to were leading figures in the investor community, major international NGOs, and also key academic, union and senior government figures.
This short note highlights some general themes thrown up by the interviews, rather than detailed points on our model. However, reactions to LicenseSecure™ were strikingly positive, with supportive comments received across the diverse range of stakeholders consulted. Most interviewees agreed that the model has the potential to drive not just improved strategic and commercial outcomes for resource companies, but also to enhance the broader impacts of resource investments (for example, on issues such as human rights, development, the environment, and also even the security of energy and mineral exports).
In terms of general themes, interviewees drew attention to a number of basic challenges and opportunities for resource companies in managing the ‘license to operate’. For example:
- An area ripe for a rigorous, structured approach
Managing the ‘license’ requires rigorous thinking on the part of senior managers and carefully structured systems to monitor and plan around a huge range of variables, it was argued. With so many issues and stakeholders potentially able to influence a project’s long-term profitability, it is difficult but also very important for companies to keep an eye on them all. Time and again, projects have suffered when a challenge springs up in the one area managers have not been monitoring.
- An opportunity to reassess during the downturn
Several of our interviewees see the current economic climate as an opportunity for companies to pause and reassess their efforts regarding ‘license to operate’ issues. A slowdown in investment for many resource firms, together with a general sense (stemming in part from the banking crisis) that large companies may need to think again about their relationship with society, may make this a good time for mining and energy firms to strengthen their ‘license to operate’ strategies before commodity prices pick up significantly again.
- No longer ‘why?’ but ‘how?’
Our interviewees also shared the view that few extractive companies now doubt the importance of sound management of sustainability and stakeholder issues for protecting the commercial value of their projects over the long term. The bigger challenge they now face is in the design and implementation of strategic solutions to such challenges; this is likely to be the focus of the debate in the coming years.
- The importance of internal skills and mindsets
A number of interviewees also argued that, in managing the ‘license to operate’, it is critical for companies to have the right people in prominent roles and a corporate mindset which appreciates the importance of socio-political issues and develops a deep understanding of external perspectives. Some of the strategic miscalculations in this area can be basic: one interviewee told us of the reputational and political problems a firm he knew well encountered when it launched a project and which in part may have been because none of the senior members of staff were able to speak the local language fluently.
- Other issues highlighted as important by interviewees included:- The role of rival, especially local or national, companies in seeding or fanning some of the reputational and political problems that international resource firms face in particular countries;
– The importance and difficulty of identifying which particular individuals to engage with as legitimate representatives of stakeholder groups; and
– The potential value to management of hard-edged, time-series data on the health of the ‘license to operate’, given that this is an area often assessed qualitatively and without a rigorous, overarching framework.