The phone-hacking scandal has done great damage to the stock of News Corp. and to the public image of its owner and founder, Rupert Murdoch. But the biggest harm may have been to another asset: the company's social license. And I'm not talking about the prospect of Rupert and Wendi Murdoch not getting invited to dinner parties in the Hamptons. Rather, I'm talking about a somewhat vague but important concept.
Operating a business and working in different markets, even regulated ones, may be a right that courts can enforce. But at a deeper level, it is also a privilege. And so in addition to a formal government license, companies also need an informal 'social license.'
A company, or an institution, gets and maintains a social license if it generally behaves and runs in a way that other businesses and institutions want to do business with it, and that governments and society at large tend to welcome them as a present. Sure, a CEO may define his or her duties as owing primarily to the bottom line and to shareholders. But a company is also evaluated, and valued, based on how well it plays with others, and on whether people want it operating in their neighborhood. (In the accompanying video, Aaron Task and I discuss the concept of social license.)
Companies that possess a social license often find it easy to expand into new areas. Danny Meyer, the do-good, feel-good restaurateur, just opened a Shake Shack in the Connecticut town where I live, and nobody seems to mind the big traffic jams or generally unhealthy grub it has brought. It is common for hosannas to erupt when the city fathers announce a Trader Joe's is coming to town. These cuddly guys have an expansive social license.
But Wal-Mart? Not so much. America's largest retailer rose to dominance through an aggressive strategy of low pricing, low wages and hostility to unions. In the rural areas where it thrived for its first few decades, that wasn't a problem. But having saturated the sticks, Wal-Mart found that its policies and corporate culture made it unwelcome in many large cities where labor and small business groups had a good deal of influence. With domestic growth having stalled, Wal-Mart now realizes that its future in the U.S. rests on making headway in cities where it currently lacks a social license to operate. It is desperately trying to get into the lucrative New York City market, for example.
Wal-Mart has been trying hard to improve its image by offering better health benefits to associates and getting involved in sustainability issues. But that hasn't helped it pry open the closed Big Apple. When you don't have a social license in a particular area, it means that instead of being invited in and receiving incentives, you might have to buy your way in. Wal-Mart just donated $4 million to a New York City jobs program as part of an effort to improve its image in New York.
The consequences of losing a social license — or not having one in the first place — can hit the bottom line in several ways.
Abstract only. Read the rest of the article and watch the video here: http://finance.yahoo.com/blogs/daily-ticker/hacking-scandal-could-cost-news-corp-social-license-172943434.html