Conceptualising social risk and business risk associated with private sector development projects

Abstract

There are various definitions of social risk. For some, social risk pertains to social protection, and risk-taking is thought to enhance human welfare. For others, social risk is contrasted with empirical risk, where the perception of risk by lay members of society differs from that of experts in any given field. More recently, social risk has come to be associated with the potential future negative social impacts of corporate activities and private sector development on individuals and groups. This paper theorises the relationships between social risk and business risk in the context of private sector developments. Many business leaders continue to conflate social risk with their existing understandings of business risk, with social risk understood to be the risk to the business arising from the actions of community stakeholders. Conceiving of social risk in this way has implications for the discrete identification, prevention and mitigation of social and business risks and impacts, and has ramifications for corporate risk management strategies, as well as companies’ relationships with community stakeholders.

Keywords:

• rights
• relationships
• corporate social responsibility
• risk perception
• risk management

Acknowledgements

The authors wish to thank David Brereton, Vlado Vivoda and the anonymous reviewers for their comments on earlier drafts of the paper.

Notes

1. We acknowledge that there is an extensive debate in the literature dedicated to the theorisation of power and its exercise, which is ancillary to this discussion, but noteworthy nonetheless. In his classic explanation, Robert A. Dahl states: ‘A has power over B to the extent that he can get B to do something that B would not otherwise do’ (Dahl 1957, 202–203). Such a view has been labelled ‘one-dimensional’ by Lukes (2001, 297). Commenting on Dahl’s thesis, Peter Bachrach and Morton Baratz contend: ‘Of course power is exercised when A participates in the making of decisions that affect B. But power is also exercised when A devotes his energies to creating or reinforcing social and political values and institutional practices that limit the scope of the political process to public consideration of only those issues which are comparatively innocuous to A. To the extent that A succeeds in doing this, B is prevented, for all practical purposes, from bringing to the fore any issues that might in their resolution be seriously detrimental to A’s set of preferences’ (Bachrach and Baratz 1962, 948). In their typology of power, labelled ‘two-dimensional’ by Lukes (2001, 300), Bachrach and Baratz observe that power additionally involves ‘coercion, influence, authority, force and manipulation’ (Lukes 2001, 301). For his part, Lukes proposes a ‘three-dimensional’ view of power ‘that is at once value-laden, theoretical and empirical’ (Lukes 2001, 313): ‘A might exercise “short-term power” over B (with an observable conflict of subjective interests), but that if and when B recognises his real interests, the power relation ends: it is self-annihilating’ (Lukes 2001, 312). These three definitions arguably are concerned with the negative, asymmetrical balance and exercise of power, with A’s interests trumping those of B. However, power can be exercised positively (i.e. to effect positive change in the interests of most, if not all, stakeholders), and in the interests of the ‘weaker’ party. Using an example from daily family life to demonstrate this point, a parent (A) positively may influence (exert power over) their child’s (B) development by ensuring that they attend school, contrary to the child’s desire to sit at home and watch television all day, or seek unskilled employment, which is detrimental to the child’s long-term interests.

2. Here, we draw a distinction between ‘domains’ of risk and ‘types’ of risk. The ‘domain’ of risk refers to the broad rubric of risk under which types of risks sit. The conventional domains are: environmental risk, business risk, social risk and political (sovereign) risk. It is our contention that environmental risk should be conceived as risk to the environment; business risk as risk to the business and its operations; social risk as risk to individuals/groups of individuals; and political (sovereign) risk as risk from the state, principally to corporate entities operating within the political society. In contrast, Boxes 1 and 4 show the types of risk and examples thereof that may be experienced by social actors (individuals and groups) and businesses.