Women increase board effectiveness

22 March 2010

A higher number of women directors leads to greater emphasis on competence-building in the board and reduces the board’s conflict level. This has made Norwegian boards more effective.

Women

KNOWLEDGE @ BI: The Contribution of Women on Boards of Directors

Just over four years ago, on 1 January 2006, new legislation was adopted in Norway concerning female board representation in public limited liability companies (ASA companies).

This was nothing less than a Norwegian world invention. At least 40 per cent of each gender was hereafter to be represented on the boards of these companies. And this innovation does not appear to have caused any disasters in business and industry.

More countries are beginning to see Norway as a pioneer in the work to get more women elected into leadership positions in both the private and public sector.

Does it make a difference?

Morten Huse, Professor at the BI Norwegian Business School, has been trying to find out whether more women directors have led to de facto changes in the work of corporate boards. And if so, what results can be attributed directly to the female factor?

Together with Sabina Nielsen, researcher at the Copenhagen Business School, Professor Huse conducted a comprehensive study of 201 Norwegian companies with between 50 and 50,000 employees.

The ratio of women in the companies they examined varied from 0 to 66.7 per cent, with an average female rate of 12.8 per cent.

This makes it possible to compare companies with a high ratio of women with companies where the suits still dominate. On average, the companies included in the study had just over six directors.

The results are presented in a scientific article that is to be published in the international journal Corporate Governance: An International Review.

Better at strategy

The two researchers asked the managing directors of the 201 companies studied to assess their respective boards by means of a questionnaire prepared in the course of the research project “The Value-creating Board” at BI Norwegian Business School.

They found that boards with high female representation spend more time working on strategic control than boards with fewer women.

This includes work relating to management strategy, to how the organisation performs its tasks and to health, environment and safety. These are areas that require high analytical and visionary skills.

The researchers found no differences in the boards when it came to solving more operational, routine board work (budgets, following up accounts). These are tasks the corporate boards solve equally well, whether they have few or many women in their midst.

Going for self-development

The answers from the companies’ managing directors also show that boards with a high ratio of women attach greater weight to development activities in the board.

An indication of this is that instructions for the board’s work are adopted to a greater extent and used as a tool. New directors are given a good introduction to the board.

Regular competence-building measures are an important area of commitment. Boards with a high female factor are also more liable to conduct regular board evaluations.

Morten Huse and Sabina Nielsen have also found that a higher ratio of women directors contribute to reducing the conflict level. The advantage of this is that the board will be able to spend more time on important strategic tasks.

- A lower conflict level combined with greater commitment to board self-development activities are factors that contribute to making board work more effective, Morten Huse comments.

Reference:
Nielsen, Sabina og Morten Huse (2010): The Contribution of Women on Boards of Directors: Going beyond the Surface. Forthcoming in Corporate Governance: An International Review.

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