Rules on minimum gender representation on company boards come into force

On 1 January 2006, rules on gender representation on company boards came into force in Norway. The new regulations state that there should be a minimum proportion of both sexes on the board, of approximately 40%. Companies have until the end of 2007 to meet the requirements set by the new legislation.

On 1 January 2006, new rules regarding gender representation on company boards came into force. The purpose of the new regulations is to secure women and men equal opportunities to be represented on company boards, and the regulations state that there should be a minimum proportion of both sexes on the board, of approximately 40%. The rules apply to all privately-owned public limited companies (allmennaksjeselskaper), which have been given two years to meet the new requirements with regard to gender representation. For state-owned companies, such rules have been in force since 2004.

Background

The Norwegian parliament (Stortinget) passed regulations on gender representation on company boards in December 2003, but implementation was postponed for some time. The background to the initiative was the fact that company boards were strongly male-dominated (NO0203104F, NO0306106F and NO0412104F). The legislation was proposed by the centre-right government in office at the time, and was supported by a large majority in parliament. In addition to the rules coming into force on 1 January 2006 - which apply to privately-owned public limited companies - parliament also passed rules with regard to state-owned companies.

For privately-owned companies, the gender quota rule adopted in 2003 was only to be implemented if companies did not succeed in increasing female representation on a voluntary basis. The deadline for achieving satisfactory female representation was the end of 2005. In December 2005, the government concluded that the gender representation requirements would not be reached on a voluntary basis and approved the new regulations as stipulated in the 2003 legislation.

Representation of both sexes on company boards

The purpose of the rules is to achieve a 40% minimum representation of both sexes on company boards. The gender quota is to be applied separately to employee-elected (NO0309102T) and shareholder-elected representatives in order to ensure independent election processes.

With regard to representatives elected by the owners, the requirement is that both sexes must be represented on company boards as follows:

• if the board has two or three members, both sexes must be represented;

• if the board has four or five members, each sex shall be represented by at least two representatives;

• if the board has six to eight members, each sex shall be represented by at least three representatives;

• if the board has nine members, each sex shall be represented by at least four representatives; and

• if the board has more than nine members, each sex must make up at least 40% of the representatives.

There are special regulations with regards to gender representation among employee representatives. These provide that, where two or more board members are elected from among the employees, both sexes must be represented. This rule will not be applicable in companies where one sex constitutes less than 20% of the total number of employees on the date of the election.

Companies that were established before 1 January 2006 have until the end of 2007 to achieve the required gender balance on their boards. New companies have to fulfil the requirements immediately.

Female representation on company boards

The latest figures from Statistics Norway (SSB) show that, as of 1 January 2006, only 17.5% of public limited companies satisfy the new legal requirements with regards to balanced gender representation in relation to representatives elected by the owners of companies. As noted, representatives chosen by and among employees must also meet the requirement of the law, except in cases where the company workforce is highly female- or male dominated. Half of the companies concerned seem to satisfy the requirement of the law in this latter regard. Women make up 17% of board members elected by the owners, and 25% of representatives elected by the employees. Only 2.4% of board chairs are women. The SSB figures indicate, however, that the proportion of female members on company boards is on its way up.

Commentary

Discussions on gender quotas on company board representation started as early as 1999 (NO9910157F), and the idea proved controversial. In 2003, the centre-right government of the time put forward a proposal for such a compulsory quota, which was approved by parliament in December 2003. The government decided that the legal rules would not take effect if the target was achieved voluntarily. Opposition to the new rules is partly based on the argument that they are seen to represent a breach of the right of owners to decide who is to represent their interest on the company board. Another argument has been that there is not, at present, a sufficient number of qualified women to meet the demand for a 40% board quota. Others, however, argue that there are enough qualified women, and that male dominance is due to a lack of interest in looking for women candidates, and a too narrow definition of the qualifications sought. The lack of women on company boards is seen as a democratic problem.

Norwegian companies covered by the legislation have two years to comply with the requirement of the law. Estimates suggest that another 600 women are needed to meet the requirements for owner-elected female board members. To this end, several databases have been established, containing the names and qualifications of women willing to take on board responsibility. Efforts are also being directed at the training of women (NO0412104F and NO0407103S).

One issue being discussed has been that of sanctions for companies not complying with the legislation. No sanctions have been established solely directed at penalising companies failing to meet the requirements for gender representation. At present the legal framework stipulates that companies not complying with requirement will, although conditional upon the issuing of several warnings, be dissolved (by order of the Court of Probate and Bankruptcy). The Ministry of Children and Equality will in the course of spring 2006 put forward a proposal enabling companies to evade dissolution by reference to broader societal considerations. In such cases, the government might make a decision not to dissolve the company in question.

Another issue subject to discussions is the extent to which the requirements on gender representation are to be extended to other types of companies not covered by the law today. For time being, the new rules cover public limited companies, of which there are approximately 500, in addition to state-owned companies. As such, the largest companies are covered by the legislation. However, a majority of Norwegian companies are not. The largest group of limited companies in Norway - which is not covered - consists mainly of smaller and family-owned companies. The regulation of gender quotas is not seen to be as relevant to these latter types of companies, and no proposal has thus so far been made to extend the provisions to other companies. . (Kristine Nergaard, FAFO Institute for Applied Social Science)