south-africa-mining-strike// Impact on Profits //

/ Problem /

A study by Harvard University has shown that many companies do not realize the financial implications or identify the costs associated with community conflicts. In many cases, the cost of community conflicts are hidden within local operating costs. The study illustrates how operations are commonly suspended or abandoned due to community conflict at varying stages in a project’s life-cycle. Communities have significant impact on a business ventures’ success during a project’s lifecycle.

Project delays, disruptions, and stoppages impact companies each day causing billions of dollars in lost annual revenue due to the negative effects of community conflicts. According to the study, “a major, world-class mining project with capital expenditure of between US$3-5 billion will suffer costs of roughly US$20 million per week of delayed production in Net Present Value (NPV) terms, largely due to lost sales.” In 2008, another study found that in the last decade the time needed for projects to go live has nearly doubled (Goldman Sachs, 190 Projects to Change the World, Global Investment Research, 2008). Frustrated individuals and communities driven by deep-seeded environmental, economic, and social beliefs have significant fiscal impacts on companies who rely upon government agreements, traditional security methods, and CSR initiatives to reduce losses sustained by community conflict.

/ Solution /

Community-based identity conflicts burden companies with unnecessary costs that can be avoided. Working to understand local identities, world views, and beliefs, companies can engage communities and reduce the negative financial impacts of community conflict. Engagements are directed toward establishing enduring stakeholder relationships throughout the lifecycle of a project.

When successful, companies reduce or entirely remove the costs involved with projects having to be temporarily suspended or in some cases abandoned. Enduring stakeholder relationships reduce business costs across multiple business lines. Physical and technical security costs can be significantly reduced if there is community-company cohesion. As the risk of violence or physical attacks on staff or the facility decreases due to improved community relations, so do the costs associated with policing or site security. Engagement strategies based on an awareness of identity conflict also allows companies to develop effective CSR programs that provide an actual return on their investment. Companies can even reduce insurance costs by demonstrating how their stakeholder relations with local communities mitigate threats to their operations.

// Rule of Law vs. Social Contract //

/ Problem /

Western companies rely on the rule of law that is created on national and international standards to mitigate community-based risks. However in most developing countries, rural areas rely on informal social mechanisms to maintain law and order and do not necessarily recognize or abide by laws or contracts signed by government ministries or bodies. A protest leader in Mandalay, Burma, where residents are fighting to hold onto land earmarked for a new industrial zone, described the law as, “The law is just on paper. It does not exist in reality.” Therefore, companies that rely on contracts and agreements with a government, without engaging with local communities and developing social contracts can expect to face significant challenges from the communities where they operate. In today’s business environment, companies are often required to “sign” social contracts with local communities to safeguard their operations.

/ Solution /

With the majority of threats emanating from communities, having a social license to operate is not only beneficial, it is required if a company expects to do business in the region for an extended period of time. For example, in Afghanistan, Pashtun Wali, a tribal code which has governed Pashtuns for centuries, is more important in some regions than laws and contracts created by governing bodies. A company may obtain permission to operate by the government, however, if the area is Pashtun land then the principle of Turah (bravery) or Melmestia (hospitality) will undoubtedly be applied. Turah is the belief whereby a Pashtun must defend his land and Melmestia affords any stranger security and safe passage. A lack of understanding and respect of a cultures informal social mechanisms is inextricably linked to conflict. This is but one of many examples. By understanding the cultural principles and informal social structures and abiding by them, a company will significantly reduce the risk of offending a community and increase the chances of building a social contract with a local population.

A Pashtun Shura in Afghanistan

// All Risk is Local //

/ Problem /

For most communities in developed and underdeveloped countries all politics is local. As in politics, all risk is local, including threats to companies. Individuals, groups, and communities have the ability to impact geopolitical risk, economic risk, regulatory, and even transfer risk. “In the streets, paths, and paddy fields of hundreds of Burmese towns and villages, thousands of protesters are mobilizing, in creative and often radical ways, for everything from constitutional change, to educational liberalization, to improved labor standards, to fair energy prices.” Social media, litigation, protests, and violence are tools used to promote their ideas or achieve their objectives. In Myanmar, officials at the Agricultural Development Bank confirmed that farmers are succeeding in challenging their traditional relationship with the state. “What truly frightens local administrators is the ability of local people to coerce the state,” said an anonymous researcher for an international development organization. This creates and environment where “the majority of threats to extraction, production and distribution emanate from local communities in which companies operate” (All Risks Are Local, Sisco 2014). Failure to understand the threats from communities can impact a company’s entire risk portfolio and have far-reaching effects on its ability to manage risk as it pertains to operations, production and profits.

/ Solution /

If the risk is local then the solution must also be local. Companies should continue their existing efforts to mitigate risk at the national level. However, companies must focus on the sub-national and community level to mitigate the majority of risks that contribute to community conflicts. Companies should endeavor to create small pockets of security or discreet operating areas within societies in which they wish to operate. This is achieved by designing and implementing narratives, which are delivered through tailored communication plans and engagement strategies to shape the perceptions and behaviors of individuals and communities. However, words alone are meaningless. Companies must create direct linkages with communities through meaningful development efforts that provide a direct benefit to individuals within target communities. The combination of tailored engagement strategies and development activities, rooted in a deep understanding of a culture is the mechanism to deliver local security for companies.


// Conclusion //

Modern companies require a culturally attuned roadmap to guide them through the complex social environments where they plan to or already operate. Identity conflict provides the contextual understanding that allows companies to anticipate and interpret the social tensions they will likely encounter. When combined with a population-centric methodology, significant experience in subsistence development, tribal and clan dynamics, and conflict mitigation, companies can operate securely and be accepted in unstable social environments. Companies that adopt a population-centric approach into their strategic planning can augment traditional physical and technical security practices, enhances corporate social responsibility programs, and design engagement strategies that improve public relations, while maximizing returns on investments.