Business and Society
Overview
The mutual dependence between society and business is profound. Businesses rely on communities for their workforce and customer base, while communities and governments depend on businesses to stimulate economic growth and prosperity by providing goods and services, employment for people and tax revenues. Because a business’s activities are embedded within society, communities and their governments have the power to influence and even halt activities they do not support.
Social acceptance of businesses is based on trust in their legitimacy, credibility, effectiveness, and responsible behaviour. The following are some key related concepts.
Social Contract
Social contract, as defined in the Merriam-Webster dictionary, is an actual or informal agreement that individual members of a society create to specify the rights and duties of each member. The concept was first proposed by moral and political philosophers. In relation to business, the social contract is described as an unwritten agreement with a firm and the society in which it operates that, to be allowed to exist, use resources and generate profits, the firm must contribute positively to the common good. This permission is distinct from the formal legal licenses and permits required by the government and is crucial for a business’s long-term success.
This short video from the McCombs School of Business in Texas describes Social Contract Theory from an American perspective.
Social License to Operate
Social license to operate is a similar idea that is much more recent and has a Canadian connection. The term is said to have first been used by a Canadian mining company executive in the 1990s in describing the need to gain community approval (or “blessing”) for its projects over and above the required legal approvals and permits, and to maintain that approval. Robert Boutilier and Ian Thomson, who developed one of the most widely used models of social license, propose that it is based on three elements:
- Legitimacy
- Credibility
- Trust
Legitimacy
Society must believe in the legitimacy of a business. That is, society must believe in the appropriateness of business institutions to supply goods and services. Mark Suchman, an American sociologist, cites three forms of legitimacy:
- Pragmatic Legitimacy: This form of legitimacy is based on the assessment by immediate stakeholders of a business and examines the perceived direct benefits to the firm’s closest audiences.
- Moral Legitimacy: Based on a values-based assessment, common good orientation and contextual evaluation, this form of legitimacy assesses the operations and impact of the business according to society’s values.
- Cognitive Legitimacy: This form of legitimacy exists when a business’s activities are perceived as necessary, inevitable, and in harmony with widely accepted societal beliefs and expectations.
Credibility
Robert Boutilier and Ian Thomson define credibility as the quality of being believable and reliable. They maintain it is built through clear, truthful and consistent communication with stakeholders, and by firms living up to all of it commitments. They argue that consistency and honesty are key to building and maintaining credibility.
Trust
When it comes to trust, Robert Boutilier and Ian Thomson propose it is a characteristic of high-quality relationships developed with significant investment of time and effort. They believe true trust comes from shared experiences and as a result of making yourself vulnerable towards others.
Edelman, a global communications firm, has been conducting an annual trust survey for 25+ years. It surveys some 30,000 people from 28 countries each year about their trust in various institutions, including business. Watch this 2-minute video on the state of trust in 2025:
References:
Boutilier, R. G., and Thomson, I. (2020). What is the Social License? Accessed on December 28, 2025 from: https://socialicense.com/definition.html
“Corporate Social Contract.” Sustainability Directory. Accessed December 28, 2025, retrieved from: https://lifestyle.sustainability-directory.com/term/corporate-social-contract/#fundamentals.
“Social contract.” Merriam-Webster.com Dictionary, Merriam-Webster. Accessed December 28, 2025, retrieved from: https://www.merriam-webster.com/dictionary/social%20contract.
“Social License to Operate.” Sustainability Directory. Accessed December 28, 2025, retrieved from: https://lifestyle.sustainability-directory.com/term/social-license-to-operate/#fundamentals.
Suchman, M. C. (1995). Managing Legitimacy: Strategic and Institutional Approaches. The Academy of Management Review, 20(3), 571–610. https://doi.org/10.2307/258788
Social contract, as defined in the Merriam-Webster dictionary, is an actual or informal agreement that individual members of a society create to specify the rights and duties of each member.
The term is said to have first been used by a Canadian mining company executive in the 1990s in describing the need to gain community approval (or "blessing") for its projects over and above the required legal approvals and permits, and to maintain that approval.
In a business context, legitimacy is a generalized perception that an entity's actions are desirable, proper, or appropriate within a socially constructed system of norms, values, beliefs, and definitions.
The quality of being believable and reliable.
Trust is a characteristic of high-quality relationships developed with significant investment of time and effort. Trust comes from shared experiences and as a result of making yourself vulnerable towards others.
