Managing community risk

This paper proposes a model for how extractive companies identify and manage community risks (see Appendix). The primary focus of the industry has traditionally been on the technical challenges of identifying and extracting minerals from the ground. However, there is a growing concern among both researchers and practitioners regarding how to identify and mitigate nontechnical risks. Prior research has shown that uncertainty surrounding different community groups can cause delays, resulting in significant losses or, in some cases, even cause projects to be completely terminated (BSR, 2003; Gifford & Kestler, 2008; Kemp & Owen, 2013; Prno & Slocombe, 2014). This paper defines community risks as the loss of legitimacy (Kostova & Zaheer, 1999; Stevens et al., 2016; Suchmann, 1995) among three types of community groups affected by a given extractive project (Calvano, 2008; Selmier et al. 2015; Wegner, 1998). Communities of place (CofP) are the geographic locations surrounding corporate facilities or operations and where the project directly impacts communities. Communities of Relations (CofR) are groups affected through their employment, investment or procurement opportunities which have arisen from the project but not be directly affecting them. Communities of interest (CofI) have a vested interest in the industry and in the project and can assert their influence on the legitimacy of the project. Each of these community groups consider different legitimacy demands and evaluate the impact of corporate decisions based on criteria of relevance to each group. Legitimacy is the acceptance of the extractive project by the community regarding its financial, cultural, social, legal, environmental and political impact. CofP, CofR and CofI can influence each other and thereby the sense-making process between communities, thus affecting the acceptance level of the project. It is therefore possible that a low level of legitimacy at the CofR or CofI level can have a significant local influence on acceptance of the CofP, or vice versa. Creating a model focused on legitimacy and community groups addresses the shortcomings witnessed in the Corporate Social Responsibility and Stakeholder Theory literature, which tend to become very complicated in their practical application (Campbell et al., 2012; Gao & Zhang, 2006; Greenwood, 2007). To support the model an empirical case study of mining companies operating in Armenia, a small resource-rich nation experiencing challenges with community risks, is included.