Question

Review The Case of Women Directors found on pages 91 - 96 in the textbook Boards, Governance and Value Creation. Review the case using the Graduate Case Study Format to structure a comprehensive analysis. The case is below.

The case of women directors

This in-depth summarizing case concerns the Norwegian law designed to increase the number of women on corporate boards. Norway has received attention in the international corporate governance debate because of the introduction in 2006 of a law requiring at least 40 per cent of the board members in corporations to be women.

Background

Norway has been at the forefront of moves to include employees in the governance of corporations. Laws regulating co-determination have been enacted as a result of wide-ranging discussions that took place in the 1960s. One of the debates centered on the question of what corporations are and what they are for. The other area of discussion concerned the workers’ role in business development.42 The outcome of the debate was that employees received the legal right to be represented on corporate boards at the beginning of the 1970s. The Company Act of 1976 was a result of joint Nordic efforts and cooperation.

In 1988 the Nordic Council of Ministers issued a statement to the effect that Nordic cooperation with respect to company law should continue. As the need for a new Company Act became apparent at the beginning of the 1990s, there was also a desire to make adjustments and to harmonize this Act with company laws and regulations in the European Union. At that time Denmark was a member of the EU but the other Nordic countries were not; as a result it was difficult to achieve the same kind of inter-Nordic harmonization and cooperation as there had been in 1976, as Denmark had also to obey EU law.

There were several features in the development of Norwegian society that made it urgent to have a new company law. One core aspect was the adjustments to EU regulations. This adjustment led, as expected, to a separation between big ‘public’ companies and small ‘private’ firms. Another aspect was the development of economic crime and the misuse of the corporate form. This was significantly more extensive at the beginning of the 1990s than it had been in the 1970s: the extent of bankruptcies, including ‘black’ bankruptcies, had increased considerably.

Proposals for new company laws were given to the Ministry of Police and Justice in March 1996, and the laws were ratified in June 1997, coming into force in January 1999. There were two laws: one dealt with private companies, with the suffix AS, and the other with public companies, ASA.43 The major advance in these laws compared to earlier laws was that they spelt out the responsibilities of the board. This led to renewed discussions about liability insurance for board members, and concerns that in the future it would be difficult to get qualified board members.

The laws also had other concrete stipulations, including requirements for CEO working descriptions, board instructions, voting rules and financial reporting to the board. The requirement for board instructions was only for companies with employee representatives on the boards. The intention of the board instruction stipulation was to ensure that employee-elected board members had real – rather than only nominal – influence on board decision-making.

Women on corporate boards

One aspect of the laws that created considerable debate was the proposal to have a quota of women on corporate boards. The subject of having quotas of women on boards was originally an equal opportunity issue, and rules concerning gender representation on boards were introduced in 1981 in the Act about Equal Opportunity. Becoming effective in 1988, paragraph 21 of the Act of Equal Opportunity had the following wording: ‘When a public body appoints a committee, board or council, etc. with four members or more, then each gender must be represented with at least 40 per cent of the members. Both genders must be represented in committees with two or three members. These rules are also valid for subsidiary members.’

The requirement concerning gender representation was motivated by social justice and a societal need. It was also argued that the particular interests of women would be better taken care of by women than by men, and that women had different background experiences from men. The objective was to accelerate this development by a quota system. This regulation had major effects. Between 1979 and 1987 the ratio of women board members in public boards and councils increased from 22 per cent to 40 per cent; since then this figure has been constant.

In 1992 there were 764 board member positions in the companies listed on the Oslo Stock Exchange. Only twenty-six of these positions, or 3.4 per cent, were held by women. In some industries there were no women at all as board members. In 1996 the ratio of women board members increased to 7.5 percent, but the increase was mainly due to the acceptance of new types of firms on the Oslo Stock Exchange: savings banks were now allowed to enter. Around this time, however, attention became focused on this issue once more, input to the discussion coming from the NHO (the Confederation of Norwegian Enterprise), the government’s Equality Centre, various feminist groups and the debates in other countries, in particular Sweden. The motivation for increasing the number of women directors changed from an equality and societal issue to a firm profitability issue, as newspapers started to report research findings about positive relationships between the ratio of women on boards and board performance.

Programmes to increase the number of women directors started to mushroom. Various programmes designed to train women as board members were introduced, mentorship programmes and women’s net- works were established, and databanks, registers or archives of women board candidates were launched.

Since the mid-1990s the political situation in Norway has been quite volatile, with frequent changes of government between a social democratic Labour administration and one headed by a Christian Democratic or Christian People’s Party Prime Minister, Kjell Magne Bondevik. In 1999 the Equality Department in the Ministry of Children and Families in Bondevik’s first Cabinet submitted for hearing a proposed reform to have at least 25 per cent female board membership in all companies – private and public alike. The proposal involved a change in the Equality Act between the genders, and it led to a strong reaction from men as well as from women. In 2000 the ratio of female board members fell to 6.4 per cent in the companies listed on the Oslo Stock Exchange. In 2002 the ratio of women board members in all public companies (ASA) was also reported to be 6.4 per cent.

This proposal, which had originated with the first Bondevik Cabinet, was acted on by the first administration headed by Jens Stoltenberg (Norwegian Labour Party). The changes in the Act of Equality were implemented without the requirements for board representation, but a new proposal for quotas for women on corporate boards in public companies was submitted in 2001. In the hearing, it was suggested that the ratio of women to men could be as high as 40 per cent in public companies (ASA companies). The proposal received only mixed support, however, with the NHO and the financial community the most negative in their reaction.

In 2002 the Minister of Industry in the second Bondevik administration presented a law proposal, derived from the two previous hearings, to the effect that each gender should have at least 40 per cent representation in all public companies. There were no exceptions to this rule for board members elected by employees; the gender representation rule was to apply to the whole board. The law proposal was ratified by the Norwegian Parliament in 2003. However, the implementation rules for the Act dictated that the law did not need to be enforced if the mandatory 40 per cent representation for each gender had been achieved on a voluntary basis before 1 July 2005. As this was not achieved, the law requiring 40 per cent of corporate board members to be women was put into effect in January 2006 – by which time the actual figure had increased to around 13 per cent. However, the representation of women on boards in corporations with more than 5000 employees had risen to more than 20 per cent by then. All companies were given two additional years’ grace before any sanctions would be imposed.

The Norwegian debate about women directors was characterized by many simplistic and partially wrong arguments. Nevertheless, the discussion and the law proposal have probably had a greater impact on the development of good board practice than was suggested in the public discussions themselves. In the Norwegian corporate community, probably no single event has contributed as much to a thorough rethinking of the contribution of boards, board tasks and board composition as the debate regarding women directors – probably more so even than the waves of shareholder activism and the evolution of codes of best practice. The contribution from these discussions has been that board member selection has, by and large, moved from being an informal and often unconscious search through professional and social networks to a professional and rational search process containing specifications of competence and qualification requirements of board members.

Summary

This chapter has looked at board members’ characteristics and compensation and board composition, which constitute the core concepts of the chapter. I relate characteristics to each individual board member, whereas compensation refers to the individual board member’s incentive structure and composition is a description of the board members as a group. It is important to identify the three concepts and to distinguish between them. However, characteristics, compensation and composition should not be viewed separately from each other when exploring boards and value creation, as the three attributes interact. Both competence and motivation are needed at the individual level, and the composition of the board should reflect the need to balance the various task expectations.

Board member characteristics is a broad term. A sub-group is competence. Seven types of board member competence criteria were presented based on arguments from theory and board task expectations:

Firm-specific knowledge may, for example, be about the main activities of the firm, the firm’s critical technology and core competence, the weak points in the firm and in its products and services, the development of the firm’s customers, markets, products and services, the bargaining power of suppliers and customers, threats from new firms or new products or services in the industry, etc.

General and function-oriented competence may, for example, be in finance, accounting, law, marketing, human resources, organizational behavior and design, strategy or just general management experience.

Process-oriented competence may include knowledge about how to run a board.

Relational competence includes the abilities the board members have to build relationships with internal and external actors.

Competence is related to the personalities and personal characteristics of the directors.

Negotiation skills.

Ownership.

Characteristics are also related to who the board members are, where they live, their age, etc.

We have used the term ‘compensation’ to describe the board members’ incentives and motivation. Included are internal as well as external incentives, and the incentives go beyond independence and share- holding. Motivation arising from liability, reputation and personal and professional standards were also introduced. Composition is about the size and configuration of the board with respect to the board members’ competence, characteristics and compensation. Board size, out- sider ratio and diversity were the main types presented. The discussion and arguments about compensation and composition were also based on competing theoretical perspectives and board task expectations.

Answer 1

and finally the success of norway atained with the equal opportunities and well laid decision making

And moreover, women has to trained for the organisational benefit in oder to achievable sustainability for long run