The Success and Failure of Social Risk Management Systems: Mining MNCs in Armenia

When it comes to social risks is the business of mining properly one of the most exposed types of activities that a company can engage in. For Multinational companies (MNC) it is not only about maintaining good relations with customers, investors and local communities but also more distant stakeholders, not directly related to the business, who can raise issues that can have a significant impact on operations. Potentially threatening the MNCs ability to maintain its social license to operate and thereby initiating a stop of mining operation at a significant cost to the company. This paper is based on the case example of Teghout coppermolybdenum mine in North-Eastern Armenia, supplemented with evidence from other mining MNCs in the country, using interviews with key stakeholders, onsite fieldwork and public available information. It is found that MNCs in Armenia adopt a standards based social risk management strategy and that this strategy is based on the adoption of an international Corporate Social Responsibility (CSR) standard promoted by the World Bank. However, the fieldwork reveal that local and regional stakeholders, from whom social risk rise, feel disengaged from the process, continue to raise questions about transparency and in some cases actively oppose mining activities and that this is happening despite the use of stakeholder engagement management systems that is promoted through the standard. My hypothesis is that the implemented social risk management systems are ineffective because they lack organisational embeddeness, which makes the MNC unable to recognise the value of weak ties and therefore fail to build legitimacy and trust with local stakeholders. I argue that this is happening because MNC use of the CSR system focuses on building strong ties and legitimacy with investors and government, rather than on building trust with the local communities that actually pose the biggest social risk. This insight into the use of CSR standards has consequences for our perception of how effective these systems are in reducing social risk and the impact on the risk management that both MNCs and their investors are practicing in turn potentially threatening their social license to operate and thereby risking a ‘stop of operation’.