What can be done to increase the number of women on boards? A snowball has started to roll in Norway, triggering a global avalance.
KNOWLEDGE @BI: Women on Corporate Boards
Norway introduced in 2003 an amendment about gender balance on corporate boards to the Public Limited Companies Act. The amendment was presented after several years of discussions within different political parties.
The law was implemented in 2006 and had a two-year implementation period. This has led to a dramatic increase in the number of women on boards of Norwegian companies.1
There have been many reactions internationally to the introduction of the Norwegian gender balance law. The business community and representatives of the international capital markets immediately voiced their reactions and suggested that this was an improper intervention to the private property right, that there would not be enough qualified women, and that the law would ruin Norwegian businesses and the Norwegian economy.
On the other side, the case of Norway is often raised as an international success story of how legal requirements achieved gender balance and increased the number of women on boards.
The world is now eager to learn from the Norwegian experience, and the questions are frequently asked if similar means can and should be used in other countries. In fact, several other European countries, such as Spain, France, Iceland, Italy, the Netherlands, and Belgium, have already introduced some form of gender representation regulations (although still in the implementation period with different regulations and penalties for non-compliance), while other countries such as the United Kingdom, Sweden, Canada and Australia have opted for the softer option with voluntary initiatives and recommended proportions.
Moreover, the EU has entered the debate concerning gender diversity and how to increase the proportion of women on boards. While the EU traditionally has focused on gender equality in terms of gender mainstreaming and a soft approach2, the recent discussion of quotas on boards is a new shift in the EU’s equality agenda. The EU with Commissioner Vivian Reading is claiming to be watching the gender balance on European boards closely, and opening up the possibility of policy actions at EU level if the proportion of women does not increase significantly within the member states.3 In this regard, there are various proposals to introduce quotas on boards both from EU and national levels, making experiences and lessons from Norway extremely valuable.
Lessons can be learned from Norway about ways to increase the number of women on corporate boards. We will reflect on the results achieved after the Norwegian law reform was implemented. The reflections consider the political context in Norway and those involved in shaping the discourse and practice on women of boards. As the Norwegian regulations have turned into a blueprint for action internationally we will comment on international consequences and international lessons to be learned.
The Influence of the Political Context & Key Actors
Norway is rated among the most egalitarian countries in the world4 and is often drawn on in a global context to exemplify ‘successful’ national policies that promote equality between the sexes.5 Both policies in terms of equality of access (such as quotas) and substantive benefits (such as welfare) have been in place for the last 30 years.6
Norway has a social democratic welfare approach with state policies designed around a weak breadwinner model and a strong commitment to gender equality. Yet, although Norway has a strong focus on egalitarianism, the labour market is characterised by strong patterns of vertical sex segregation. While the proportion of women in public sector organisations and national politics is high, the patterns differ in other areas of the labour market such as in academia and the private sector.7 This problem was the starting point for the gender balance law.
“Norwegian businesses and the business community were, in 2003, generally against the law being implemented, and they wanted to prove that the gender balance objectives of the law could be reached through voluntary actions and soft regulations.”
The discussion of gender regulations on corporate boards started as early as the 1980s.8 In 2002, the Norwegian Minister of Trade and Industry, Ansgar Gabrielsen, made a public announcement that a law regulating gender balance on corporate boards should be made. Preparations for a law regulating the proportion of women on boards had then passed a long political process and been prepared by various ministers of Equality. The main motivation in the Ministry of Equality was to explore options for affirmative action on boards and a push for gender equality.
The law was officially suggested in June 2003 by the second Bondevik government. It was later ratified by the government in December 2003. The law was a result of cooperation between the Ministry of Equality (Children, Equality and Social Inclusion) and the Ministry of Trade and Industry, and it had broad political support. However, the fact that Gabrielsen, a male conservative Minister of Trade and Industry, was the one facing the introduction was important for wider acceptance.
This indicates the importance of wide political support for success. With the initiatives from the Minister of Trade and Industry the purpose of the law was presented within the realm of the business case; ‘it is good for businesses to have women on boards’. This is important as despite Norway’s reputation as a country of gender equality, the use of gender quotas within the private sector in Norway was controversial and debated.
When describing the Norwegian corporate governance arena it is important to understand the Norwegian history and the main actors.9 This includes the fact that Norway is a small country with only a few large corporations, there are not many people with a long history of being wealthy, and the state and public authorities are important actors. In practice that means that there are few traditional family companies, but that even small companies have had active boards of directors, public policy initiatives have been of major importance, and recent movements of investor activism have received considerable attention.
The Norwegian authorities are clearly key actors in the corporate governance arena. The authorities act as both law-makers and as owners. However, there are also various other actors that define and shape the corporate governance arena. Norway has a civil law system, and there exist various forms of incorporation.
The gender representation law introduced affects several types of companies and the legislation on gender representation on boards applies to all publicly-owned enterprises (including state-owned limited liability and PLCs, state- owned enterprises, companies incorporated by special legislation and inter-municipal companies) and all PLCs (ASA) in the private sector. No rules have been proposed for privately owned limited liability companies (AS).
The Norwegian gender balance law was deeply embedded in the Norwegian institutional, political context, and the introductions were influenced from actors in politics and business. Norwegian businesses and the business community were in 2003 generally against the law being implemented, and they wanted to prove that the gender balance objectives of the law could be reached through voluntary actions and soft regulations.
The members of the Norwegian Parliament listened to these requests, and the business community got two years to prove that it was possible. As a result, it was agreed that the amendment for a gender balance on PLC boards would be withdrawn if the companies voluntarily complied by July 2005. The law was referred to as a ‘sunset law’. However, this did not take place as the proportion of women in 2005 was only 16 per cent.1 Consequently, the law was introduced in January 2006 with a two-year implementation period ending in January 2008.
As the law was included as a part of the Norwegian Company Act, the companies had to meet the gender balance requirements (about 40 per cent) to keep the rights to have the PLC incorporation status. However, in 2007 and 2008 a significant number of PLCs changed incorporation status. These were in particular financial institutions that by law till then had been required to have the PLC status. This law requirement changed in 2007.
International Consequences & Lessons to be Learned
It is apparent that Norway started a trend that has spread globally. A snowball started rolling. It has been growing and it is spreading faster and faster. For many it has become like a threatening avalanche that seems be spreading worldwide. This avalanche is mobilising ideological and political resistance.
This context is important for understanding and explaining the number and proportion of women on boards and the use of various public policy initiatives.10 There are similarities in the path that led the law to be passed in Norway and what happens in other countries. The pattern starts with a small number of women on boards and an increasing attention on the societal, individual and business case for greater diversity on boards. Voluntary actions including the development of women’s networks, research programs and research centres, courses and seminars to educate and prepare women to work on boards, mentorship and sponsorship programs, databases and registers of ‘board ready’ women, law proposals and recommendations of voluntary targets, etc., have been established, but no substantial change in numbers are observed. This again leads to the acknowledgement that affirmative action may be necessary and consequently to the decision to propose a law. It is a common trend that both the political and media debates are intense and heated.
The public debate continuously raises concerns about the lack of suitable women with the right competence and experience, as well as the lack of women that want these types of positions. In the case of Norway, these types of arguments have little support. Public companies affected by the gender balance law have managed to find women with relevant experience and have complied with the law. Post-facto studies in Norway demonstrate that women directors are better educated than their male counterparts.11
It is, however, important to understand how boards in practice are working and in general how the competencies of board members may be used. In the discussion of competent women the focus of actual board member choice criteria is moving from independence to competence. The international discussion of the contribution of boards may thus move from that of value distribution to value creation.
Are Formal Regulations Needed?
Has the Norwegian gender balance law been successful? Results of some empirical studies indicate that there may be negative economic effects of the Norwegian law.12 However, when evaluating the effects of the law it is necessary to go beyond measuring the immediate reaction in the financial markets that took place as women were appointed to boards. It is important to understand the longer-term business case results, the consequences for individual women and also for society – in Norway as well as in other countries. Studies about the Norwegian case indicating short-term relationships have mixed results.
Core questions to be addressed are if it is possible to get gender balance on corporate boards by voluntary actions, and if so, how can gender balance be achieved in various countries? What will be the effects of increasing the number of women on boards through formal regulations – for boards and companies, for women, and for society? How may these effects vary across countries? Finally, there will be a need to understand the dynamics of the consequences. This means how actors and agencies in various ways may influence the consequences of a gender balance law.
In the case of Norway during recent years there has been little debate about the law. It is widely accepted. The fact that the law can be seen as successful in Norway is an important lesson when looking at the developments taking place in other countries. Moreover, over the last decade, the political and economic contexts globally have changed significantly, affecting the focus on diversity, the role of corporate boards and the meaning of corporate governance. The case of Norway demonstrates how legal intervention was a successful tool, which can guide international policymakers.
Should other countries follow the Norwegian example? No clear answer can be given, and it is far too early to conclude about the long-term consequences in Norway. It is also important to understand national, historical and institutional factors as well as the use of other public policies when considering paths to increase the number of women on boards. These considerations are important both for the possibility to increase the number of women on boards, but also for the consequences of a law.
It is, however, also clear that there has been a change in the international landscape as a result of the Norwegian gender balance law. The question of having women on corporate boards and in leadership positions has now got considerable attention and large acceptance. And quotas are no longer a radical concept nor a shock to regulatory /economic systems. It is a policy that in practice may be considered a realistic and successful tool.13
1.The article relates to Machold, S., Huse, M., Hansen, K. and Brogi, M. (2013). Getting Women on to Corporate Boards –A Snowball Starting in Norway. Cheltenham, UK and Northampton, MA, USA: Edward Elgar, and in particular to its chapter 1.
2. Walby, S. (2004). The European Union and Gender Equality: Emergent Varieties of Gender Regime.Social Politics.11 (1): 4-29
3. Reding, V. (2013). Winning the board game: Europe’s economy needs more women in business. In Machold, S., Huse, M., Hansen, K. and Brogi, M. Getting Women on to Corporate Boards –A Snowball Starting in Norway. Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
4. WEF (2008). The Global Gender Gap Report. R. Hausmann, L. Tyson and S. Zahidi, World Economic Forum: 181.
5. The Nordic council of Ministers (2007). “Norden Official co-operation in the Nordic region ”http://www.norden.org/web/3-1-raad/3-1-5-nmr/uk/index.asp.
6. Seierstad, C. and Healy, G. (2012). Women’s equality in the Scandinavian academy –a distant dream? Work, Employment and Society. 26(2): 296-313.
7. Seierstad C. and Opsahl, T. (2011). For the few not the many? The effects of affirmative action on presence, prominence, and social capital of female directors in Norway. Scandinavian Journal of Management 27 (1):44-54. Skjeie, H. and Teigen, M. (2003). Menn imellom: mannsdominans og likestillingspolitikk. Oslo, Gyldendal Akademisk
8. Huse, M. (2013). The political process behind the gender balance law. In Machold, S., Huse, M., Hansen, K. and Brogi, M. Getting Women on to Corporate Boards –A Snowball Starting in Norway. Cheltenham, UK and Northampton, MA, USA: Edward Elgar
9. Rasmussen, J.L. and Huse, M. (2010). Corporate Governance in Norway: Women and employee-elected board members. In Mallin, C. International Corporate Governance. Cheltenham, UK and Northampton, MA, USA: Edward Elgar
10. Terjesen, S., Aguilera, R.V. and Lorenz, R. (forthcoming) Legislating a woman’s seat on the board: Institutional factors driving gender quotas for boards of directors. Journal of Business Ethics.
11. Heidenreich, V. (2013). Consequences of the Norwegian gender quota regulation for public limited companies. In Machold, S., Huse, M., Hansen, K. and Brogi, M. Getting Women on to Corporate Boards –A Snowball Starting in Norway. Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
12. Ahern, K.R. and Dittmar, A.K. (2012) The changing of the boards: The impact on firm valuation of mandated female board representation. Quarterly Journal of Economics. 127(1): 137-197.
13. Machold, S. and Hansen, K. (2013) Policy approaches to gender diversity on boards: an introduction to characteristics and determinants. In Machold, S., Huse, M., Hansen, K. and Brogi, M.Getting Women on to Corporate Boards –A Snowball Starting in Norway. Cheltenham, UK and Northampton, MA, USA: Edward Elgar.
This article is published in The European Financial Review on December 4th 2013.
About the Authors:
Morten Huse i s professor of organisation and management at BI Norwegian Business School and the Reinhard-Mohn-Chair of Management and Governance at the University of Witten/Herdecke. His research focus is on boards of directors for strategy, entrepreneurship and organisation perspectives. He has published widely about women on boards.
Cathrine Seierstad is a lecturer at University of Sussex. She also holds a research position at University of Witten/Herdecke. Her Phd from Queen Mary University discussed women on boards and in academia.