Case 2: Gender Quota on Board Representations by Norwegian Parliament

In December 2003, the Norwegian Parliament passed a first-of-its-kind law requiring all public-limited firms to have at least 40% representation of women on their boards of directors by July 2005; at the time women held only 9% of board seats. After voluntary compliance failed, the law became compulsory January 1, 2006, with a two-year transition period. Firms that did not comply by January 2008 would be forced to dissolve. Notices to comply were given to 77 delinquent firms in January 2008, and by April all public limited firms were in compliance with the law.

There are two different forms of limited liability stock companies in Norway. A private limited liability company is an Aksjeselskap, abbreviated AS. A public limited company is an Allmennaksjeselskap, abbreviated ASA. The key differences between the two forms are that ASA firms are much larger (with minimum capital requirements 10 times larger than the requirement for AS firms), require no consent to trade shares, and hence may list shares on a public stock exchange. The other key difference is that only ASAs are subject to the gender quota that is the focus of this article. As described in the introduction, the quota was first passed on a voluntary basis in December 2003, then made mandatory in January 2006, with full compliance required by January 2008. The law specifically states the number of board members by gender and effectively imposes a requirement that firms achieve approximately 40% board representation by women. Specifically, if a firm has two or three members, both sexes should be represented; four or five members, both sexes must have two representatives from each sex; six to eight members, both sexes must have three representatives from each sex; nine members must have four representatives of each sex; and more than nine members must have 40% of each sex.

One difference between Norwegian and U.S. boards is that in Norwegian firms with over 200 employees, the employees have the right to elect one-third of the board. However, the quota rules apply separately to each group of board members. This means a firm cannot pack the employee-elected board with women to avoid appointing shareholder-elected women directors.

Though Norway is similar to the United States and United Kingdom in terms of governance, it differs in its gender and labor policies. Norway has very progressive gender policies, ranking number 3 in the United Nations Gender-Related Development Index of 2008, compared to a rank of 10 for the United Kingdom and 16 for the United States. These policies are evident in the 2008 Norwegian Equal Pay Commission which recommends that new parents get 57 weeks leave (with 80% pay compensation) or 47 weeks (with full compensation) with an equal division into three periods, one for the mother, one for the father, and one for the mother and father to share. Moreover, Norway has one of the highest shares of women in Parliament. Following voluntary party quotas introduced in the 1970s, Norwegian women hold 62% of legislative seats in 2008, compared to the United States with 20% and the United Kingdom with 25%. In light of Norway's progressive stance on gender equality, it is not surprising that it was the first nation to implement such large gender quotas

on corporate boards. It also means that we expect smaller effects from the quota in Norway than we would in another country.

Read the handout 2, and write down your opinions about the two regulation changes related to bestboardpractice.

How is it going to (directly) impact board composition?

Any unintended consequences of the regulations?

Is this kind of mandatory requirement about board structure recommended? Why?