Thursday, January 28, 2010

Norwegian Law Mandating Women on Corporate Boards

The NYT has a very interesting article on a Norwegian law mandating that 40% of corporate boards must be comprised of women. Initial responses to the legislation were hostile: Many prominent business leaders dismissed the 2003 law as a political stunt and argued that Norway, with just 4.8 million people, did not have enough experienced women to meet the quota. One chief executive of a software company told the business newspaper Dagens Naeringsliv that companies would have to recruit “escort girls” to meet the target.

Now, 8 years later, the article notes that "the share of female directors at the roughly 400 companies affected is above 40 percent, while women fill more than a quarter of the board seats at the 65 largest privately held companies."

Apparently this revolution in the corporate boardroom has not gone unnoticed: Spain and the Netherlands have passed similar laws, with a 2015 deadline for compliance. The French Senate will soon debate a bill phasing in a female quota by 2016, after the National Assembly approved the measure last week. Belgium, Britain, Germany and Sweden are considering legislation.

I am not usually in favour of government mandated behavioural change, but think that there may be something to this idea. Corporate boards are old boy's clubs and radical shake ups such as these might have some effect in overcoming groupthink problems. Without legal compulsion it is unlikely that the severe gender disparity will be corrected. As the article points out, in the European Union, 9.7 percent of the board members at the top 300 companies were women in 2008, versus 8 percent in 2004, according to the European Professional Women’s Network. In the United States, roughly 15 percent of the board members of the Fortune 500 companies are women, while at the top of Asian companies, women remain scarce: In China and India, they hold roughly 5 percent of board seats, in Japan, just 1.4 percent.

To be sure, quality issues are inevitable byproducts of such quickfixes. The article refers to a University of Michigan study which "found that the sharp increase in women as directors significantly reduced the average amount of senior executive-level experience on the boards at 130 of the biggest Norwegian companies."

Much more research is needed before firm conclusions can be reached. Are Irish lawmakers listening?