Social standing - company reputation and trust

Materials World magazine
12 Jun 2014

Social credentials, company reputation and community trust need developing early in the timeline for any mining project, argue Jeff Nichols, Managing Director at Exploration Services, and Alka Patel, Director at LocalColour SRM Ltd, both UK.  

It is now common for project financing to be contingent on a resource company having undertaken an environmental and social impact assessment, as well as obtaining official permits. However, exploration can take up to 10 years, forming a significant part of a project’s timeline, and it is common for such studies to be initiated only after a number of years of exploration, at the time of a pre-feasibility study or even early on in a full feasibility study. Meanwhile, long-standing local grievances may already have become established, creating reputational risk. Exploration is the first activity on the ground. At this stage, the company and its staff will come into contact with local communities and other stakeholders in the project. Precedents will be established that will leave lasting and possibly costly legacies, and relationships will be formed that can affect both company and community.

The early stages of a project life cycle are frequently focused on the technical and legal aspects. Once finance is in place, there is often strong pressure put on the exploration team to get started. Such financial resources are often limited, increasing the focus on getting the best perceived value for each exploration dollar. During this phase, social interaction may consist of project promotion and the minimum contact necessary to start fieldwork. Acceptance by a community can sometimes be mistaken for its approval. Failure to get social strategy implemented effectively can create suspicion, antagonism and grievances, leading to conflict further down the line.

Reputation, reputation, reputation
The reputation of a project is key. Firstly, due to its intrinsic value as an intangible asset and secondly, its ability to create or destroy future value. The viability of projects becomes threatened when they are considered socially unacceptable. Cases of blockages and violence by protesting local communities are indications of high social risk, and managing both this and reputational risk requires a social licence to operate.

Potential investors can be deterred from becoming involved with a company if there are known social issues at a project site. Similarly, potential joint venture partners will look at community relationships as part of their due diligence when assessing the social, environmental and human rights impacts and risks. Any resulting delays in finance can affect the exploration programme schedule, which can impact the company’s bottom line.

Ernst and Young rated maintaining a social licence to operate as the fourth largest business risk facing the mining industry in 2011–2012. In Newmont’s 2009 Community Relationship Review, the CEO at the time, Richard O’Brien, said, ‘We know that the relationships we build are fundamental to the success of our business’. This suggests a strong case for building community relationships at the start of a project, as the first geologist’s boot hits the ground.

When Alkane Resources began exploration at Peak Hill Gold Mine, Australia, in 1993, they ensured that a strategy was put in place for community engagement based on a policy of clear and honest communication. In 2002, they closed the project and converted it into a tourist attraction in the hope that a positive track record at Peak Hill would help them gain trust and acceptance for planned new developments at other sites.

Toolkits for the future
A number of initiatives have been developed to assist resource companies in understanding the issues they might face and developing a social strategy. Social science phraseology can seem rather complex at times, and few outside the disciplines may understand the meaning of, for example, promoting cross-functional coordination. There are a number of guides available that attempt to clearly outline the type of issues faced by the industry, along with the principles on how to get started. The International Finance Council is currently preparing a Good Practice Handbook for junior companies in the extractive industries. The Prospectors and Developers Association of Canada has produced an Excellence in Social Responsibility e-toolkit.

Yet while these products can help companies understand what can be done, the actual implementation requires flexibility, expertise and adaptation. Each case requires an approach tailored to the social and cultural circumstances unique to the project and its surroundings. This can be done by working with an experienced social scientist, who will work closely with the project staff and communities to build understanding and capacity. The specialist can design, implement and interpret a programme, keeping management informed of the results in a way they understand and can base decisions on. In principle, it is not that different to exploration.

Initially, focus has to be on understanding the social landscape, building trust and managing expectations. Recognising stakeholder groups is critical, as is understanding their respective influences and how they are impacted by the project. Sometimes the more vulnerable groups are poorly represented, yet these groups may be the ones that are most impacted by the project. However, misunderstanding community dynamics and placing too much emphasis on the opinions of perceived influencers may create conflict both within and between communities. This is particularly so if a company’s community engagement programme is orientated around winning over influential groups and individuals. Two groups who are frequently not given due regard are women and young people.

Establishing social credentials with stakeholders is not an easy task, but it is an increasingly integral one for resource companies if they are to succeed in future.

Case studies
A research study by Davis and Franks in 2011 examined 25 cases of company–community conflict in the global natural resources sector. Results indicated that consultation and communication was one of the most important issues in dispute and featured as an underlying or proximate issue in 18 out of the 25 cases. Other concerns that featured highly in the survey were distribution of benefits, access to resources, pollution and community health and safety.

The manifestations of conflict were predominantly submissions to company or government (23 out of 25 cases) but also included publicity campaigns (23), administrative proceedings (17) and litigation (16). However, many of the cases also involved physical protests such as demonstrations (22) and blockades (14). Physical violence to property and to people featured in more than 30% of the cases.

The most likely outcomes were loss of production, staff time spent on conflict resolution and increased costs due to litigation and administrative proceedings.  

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