Social capital

WHAT DOES THE CONCEPT MEAN?

The concept of social capital can be hard to define. The OECD defines it as “networks together with shared norms, values and understandings that facilitate cooperation within or among groups”. Social capital is an important constituent of the prosperity of a company. For companies, social capital refers to the value that is created based on their relationships with stakeholders. Social and relationship capital may also include the relationships in an organisation, as well as those between an organisation and its external stakeholders. Therefore, it helps a company to engender social cohesion and trust.

The meaning of the term depends on the sector in which a company operates. In essence, it refers to intellectual capital, human capital, and social and relationship capital. It’s the value a company adds to society, its networks and relationships. Referenced components are for example reputation, the social licence to operate, collective well-being, “cultural” or “heritage” capital and stakeholder-based capital.

To explain the elements of the theory, researchers break it down as follows:

• Networks, relationships and connections
• Trust and reputation
• Civic engagement and voluntary activities
• Example: Cooperation and political participation
• Civic norms, shared norms and values

INCREASING SOCIAL CAPITAL

A business can increase social capital in many ways. Here are a few examples:

When referring to social and relationship capital formation and/or the social licence to operate, companies need to include legal or regulatory compliance by geographic location (national, regional, international), market, cultural group and disciplinary interest.

For example, in terms of investor analysis, a soft proxy for the licence-to-operate concept may include:

• Heavily regulated industries (e.g. power, telecoms, airlines, banks, insurance and pharmaceuticals) where the licence to operate is a tangible factor in rate reviews and regulatory approvals.
• Consumer industries (e.g. automobiles, apparel and discretionary goods such as cosmetics, jewellery and luxury goods) that are often monitored by customers in diverse markets with strong environmental and social governance priorities.
• Global companies in industries where growth by acquisition is common (e.g. oil, gas and infrastructure) and where regulatory compliance, reputation, labour relations and risk management are important to the licence to operate.

The importance of social capital cannot be overstated. The advantages are endless – bonding, bridging, building. It illuminates new dimensions of business.

HOW CAN YOU GROW YOUR SOCIAL CAPITAL?

To structure a solid capital-generating process, you should:

1. ENGAGE – Capitalise on and enhance the relationships your organisation has. Design engagement, management and measurement tools to create social capital from the outset.
2. MEASURE – Determine the basis of stakeholder perceptions and valuation. Choose engagement, information collection, assessment and review processes with a view to understand how stakeholders perceive their relationship with your organisation. Decide how to calculate social capital, whether it is positive or negative, and whether it enhances or depreciates value.
3. EVALUATE – Estimate the relative worth of the capital generated, as agreed to by relevant stakeholders based on their perceptions of the organisation.
4. REPORT – Clearly state your valuation methods and be transparent about uncertainties. Capture both negative and positive impacts, risks and perceptions.

Easier said than done, we know. Contact Next Generation to set up a consultation. We can help you to measure and increase social capital in your business. We’ll explain the process, indicators and metrics, as well as reporting guidelines. In the meantime, here’s a link to further resources and articles.