Government proposes gender quotas on company boards

In June 2003, the Norwegian government submitted a legislative proposal aimed at achieving 40% female representation on the boards of all public and (larger) private companies. The proposed law would apply to private companies only if they fail voluntarily to achieve an acceptable level of female board representation by 2005.

On 13 June 2003, the Norwegian government issued a proposal for new legislation relating to gender quotas on company boards. The aim is to achieve a 40% share of female board members in both larger private firms and public enterprises. The proposed legislation would be made applicable to private companies only if they fail voluntarily to achieve an acceptable level of female representation on their boards. The government's proposal comes against the backdrop of an increasing awareness of the low presence of women on company boards in Norway. The government sees this as an equal opportunities issue and argues that the business and industry community is not doing enough to avail itself of the competences and qualifications of both women and men.

The idea of introducing gender quota legislation for company boards was put forward as early as 1999 by the coalition government of centre parties at the time (NO9910157F), and repeated in 2001 by the Labour Party (Det norske Arbeiderpartiet) government (NO0003183F). It was, however, the present centre-right coalition government, represented by the minister of trade and industry, that in March 2002 went public with its intention to introduce a legally-based quota scheme unless businesses themselves made sure that more women were recruited to company boards (NO0203104F).

The boards of larger Norwegian companies include representatives chosen by the company owners themselves. Some board members have representation by virtue of their large ownership shares or direct (employee) relationship with such owners. Others have no significant ownership interests, but are elected to the board on grounds of their qualifications. Up to one third (in larger companies) of representatives are elected by the employees (TN9809201S). The boards of Norwegian companies are usually not involved in the day-to-day running of companies, but nevertheless have significant responsibilities in relation to their development and operation.

The new proposal

The main features of the government's June 2003 proposal are as follows.

Both men and women to be represented on boards

With regard to board members elected by company owners:

  • on boards with two to three members, both sexes are to be represented;
  • on boards with four to five members, each sex is to be represented by at least two members;
  • on boards with six to eight members, each sex is to be represented by at least three members; and
  • on boards with nine members, each sex is to be represented by at least four members, and on boards with more than nine members, at least 40% representation of each sex is required.

Special rules for how employee representatives on boards are to be elected will also be introduced. In cases where two or more employee representatives are to be elected, there must be representation of both sexes. This rule does not apply in companies where one sex constitutes less than 20% of the total number of employees at the time of the election.

Both private and public sector

The new law is to apply to all state-owned companies, inter-municipal enterprises and public limited companies (PLCs). The latter is by far the largest group, and consists of mainly larger private companies open to investments from external investors (but includes many more companies than those listed on the stock exchange). Quota rules are not proposed for private limited companies, because these mainly consist of small family enterprises where the owners are represented in person on the board.

Implementation

The government wants affirmative action with regard to increased female board representation to take place on a voluntary basis. Thus the proposal stipulates that the part of the proposal relating to private enterprises (public limited companies) would come into effect only if the goal of 40% female representation is not achieved voluntarily by 2005. An evaluation is to be carried out by 1 July 2005. If the proposed law is made applicable to this group, the companies will be given a two-year period to comply with the new rules. Thus this group of companies would have to satisfy the requirements with regards to a gender board quota some time during 2007.

For publicly-owned enterprises the new rules would come into force from 1 January 2004, and would be implemented without reservations.

The new rules would not be incorporated into the Equal Status Act, but in the relevant Acts relating to the types of enterprises concerned.

Current position

Most evidence suggests that female representation on company boards is low in Norway. A recent survey from the ECON economic research institute found that 18% of all board members in the public and private companies which would be covered by the new rules are women (in September 2002). This figure increases slightly if deputy members are not included. The distribution of female board members varies significantly between private and public enterprises. In private enterprises (public limited companies) women occupy 6% of all board seats, while state-owned companies have between 33% and 42% female board representation. Many private companies do not have female board members at all. Out of 611 public limited companies for which figures are available, 470 do not have female board members.

Figures from the Norwegian economic publication, Økonomisk Rapport, indicate that among stock exchange-listed companies (160 in 2002) the proportion of women on company boards increased from 5.9% in 1999 to 7.5% in 2002. However, among these companies as many as 70% do not have any female board members at all.

Commentary

When the government first signalled its intentions to put forward such a proposal, it was met with both criticism and praise. Business and employers' organisations voiced considerable criticism. The Confederation of Norwegian Business and Industry (Næringslivets Hovedorganisasjon, NHO) sees the proposal as unnecessary, because voluntary efforts are already being made to increase the recruitment of women to company boards. NHO is also concerned with the issues of principle related to the introduction of such a legal obligation. NHO has argued that a quota arrangement applicable to all public limited companies will lead to unreasonable constraints on the owners’ ability to look after their interests. Other groups argue, by contrast, that the lack of women on boards is an important problem that needs to be dealt with, because of both its equal opportunity implications and what is regarded as an under-utilisation of qualified groups by business and industry. The argument is often used that legal provisions are necessary because satisfactory female representation will not be achieved through voluntary means.

Another argument against quotas has been that there are not enough qualified women to fill the number of board seats suggested by the new proposal, and when available such women often tend to refuse. A survey carried out by NHO indicates that this is believed to be the main impediment to increasing the share of women on company boards. The argument is, however, contested by equal opportunities campaigners, who see the problem as the fact that men tend to recruit men, through informal networks or because recruiters often look for people that are similar to themselves. Thus the challenge is not too few qualified women, but rather that many competent women are not even considered.

The issue of female quotas and the recruitment of women to company boards has frequently been on the public agenda in recent years, especially following the warning that legal measures would be taken unless voluntary means resolved the problem of under-representation. NHO has developed a guide offering practical advice for companies about how to increase female representation on boards. Databases containing details of qualified women have also been developed. The media report that several larger enterprises now are recruiting women to their boards.

In the summer of 2003, a year has passed since the present government made clear its intention to regulate the gender composition of company boards if greater women's representation failed to materialise voluntarily. In the course of these 12 months, state-owned enterprises have increased the proportion of women on their boards significantly. The state has thus used its influence as an owner in relation to the election of new board members. It is nevertheless clear that efforts made by private companies need to be intensified considerably if legal obligations are to be avoided. At present, it seems that Norwegian business and industry is not able to reach this goal voluntarily. (Kristine Nergaard, FAFO Institute for Applied Social Science)

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