How Norway introduced a quota system to increase the number of women on boards – and business benefited more broadly.
KNOWLEDGE & BI: Women on Boards
It recently emerged that there were more men named John running large companies in the US than women. Actually, the percentage of female corporate board members in the US is about average – 19%. Japan is lagging behind, with women holding just 3% of board seats, but Norway has one of the best records: women hold 35.5% of the seats on Norwegian stock index companies.
This relatively high percentage of women on boards is largely a result of the country’s introduction of quotas. There has been a great deal of debate over whether or not quotas are a good way of addressing gender imbalance on boards, but Norway provides a real-life example how it works.
In 2003, the Norwegian government passed a law that requires at least 40% of company board members to be female. In place since 2006, it stipulated dramatic regulatory measures for non-compliance. After an initial grace period of two years for existing companies, a failure to achieve the 40% quota would lead to the company being delisted.
The initial reactions in Norway were strong and overwhelmingly sceptical, and arguments against quotas elsewhere mirror those raised in Norway in 2006. They range from the principled, such as the unfortunate tampering with free market mechanics, to the practical, such as the severe lack of qualified women.
But now, the quota law has largely become a non-issue in Norway. We present an insider’s view on some of the major cultural and organisational trends affecting the introduction of a quota law.
There have been many dubious statistics used to show how introducing quotas will detrimentally affect company performance, but we find most of this work tenuous and a tad sensationalist. The sample size is often small and the time horizon short with many other strong factors such as the financial crisis ignored.
A loud argument against board quotas was a lack of qualified female candidates, as well as the lack of women that wanted these types of positions. To the first argument, as long as the qualification was something as narrow as “past corporate leadership in the same or nearby sector”, the playing field was indeed very narrow, as there simply weren’t (and still aren’t) enough past female corporate CEOs to go around. But we know how good necessity is at fostering innovation, and that is exactly what it did.
Criteria widening – not weakening
Nomination committees and owners were forced to broaden the criteria, and many new and interesting board candidates appeared, including younger female specialists, in technology, finance, law or some other field highly relevant to companies’ strategy. This has even broadened the board recruitment field for men, as more young men with international and entrepreneurial backgrounds appear on boards now. Another important effect of the gender balance law is that it has resulted in diversity beyond gender to include different backgrounds, edutcation and experience.
There are studies that show women directors have higher formal education than their male counterparts. Sociologist Vibeke Heidenreich has shown how finding suitable women with interest in board work proved to be relatively easy. They were recruited from similar arenas as men without previous board experience – professional networks.
There was an initial rush for the few highly-networked women perceived as qualified by old standards, and a few women got multiple directorships. But, there are now four key clusters of well-educated and qualified women entering the boardroom. These are:
- Younger women, with experience from consultancy, well-educated, highly knowledgeable and with supporting mentors
- Highly experienced business women without non-executive experience actively seeking directorships
- Women with broad experience from national and international politics
- Experienced women with past pre-law broad experience, both executive and non-executive.
The important thing is they are all qualified, just not in the traditional way. And, the increased use of professional recruiters and experienced nomination committees to find candidates is reducing the dominance of networks. They are often charged with the task of finding candidates with alternative profiles beyond the circles of the “usual suspects”.
Another lesson learned from Norway’s quota law is that gender-balanced boards also spread to companies where it was not enforced. The gender representation law affected two types of companies: all publicly-owned enterprises and all PLCs in the private sector. No rules have yet been proposed for privately owned limited liability companies. However, the focus on improved selection processes and nominating more women has led to increased diversity across all companies. This is the case in both private and public, and both commercial and non-profit sectors.
Anecdotal evidence shows that the new boards are more dynamic, more open and more innovative than the old ones. This is supported by research demonstrating that increased diversity and more women on boards has the potential to increase firm innovation and board effectiveness more broadly.
More than a nudge needed
Societal change is hard. If the change requires a significant change in culture over relatively short time, nudging and encouragement are not enough. The Norwegian case shows that negative incentives create a sense of urgency and provide the necessary motivation to increase the number of women on boards.
Fairness is relative. When the playing field is skewed with strong historical and cultural biases hindering change towards a more equitable use of the talent pool, incentives such as the quota law can establish new role models and new, more effective standards.
Board gender quotas should no longer be seen as a radical concept nor a shock to regulatory or economic systems. Norway shows how the policy can be a realistic and successful tool that created real improvements in the way companies are run and achieve greater gender parity.
This article is published in The Conversation 6 March 2015.