When Norway introduced a 40 percent gender quota on the boards of listed companies in 2006, it was seen as a much-needed step toward equality. Now private firms are on the agenda.
The Norwegian government submitted a proposal earlier this year that would require large- and mid-size private firms in the country to have women comprise at least 40 percent of the board. It’s an extension of regulations governing the composition of boards at listed companies and is another step toward improving gender parity at the boardroom level.
“The new regulations will impact board composition, and it should see an improvement as it relates to gender balance at the medium and small business levels. It should have a similar impact to what happened at the high levels in Norway,” Ms Turid Elisabeth Solvang, Founder and CEO of FutureBoards, says.
While listed companies swiftly adapted to the regulations when they went into effect in 2008, there has been no trickle-down effect. The Norwegian government cited the fact the proportion of women on boards in private firms has increased by only five percent over the past two decades as a reason the new bill is required.
Ms Solvang adds the new bill must contain a reason for private businesses to comply. For listed firms, those who failed to appoint women to their respective boards faced being shut down.
“Regulations alone are not enough. Sanctions are also required to ensure companies follow through on these. Without consequences, there will be no reason for businesses to comply,” Ms Solvang states.
The new regulations will eventually extend to private firms with 30 or more employees and yearly revenues above NOK50 million when fully implemented in 2028. Approximately 20,000 companies are set to be affected.
“The problem won’t fix itself. It has been a slow process in terms of increasing the number of women on boards. There are a lot of arguments against women, such as they are not competent or don’t want those positions. Those are not true,” Ms Solvang notes. “We now have a better understanding of everything, including the benefits. Companies risk falling further behind if they don’t take action on this.”
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Finding Candidates
With Norwegian companies now needing to increase the number of women on their boards, finding candidates is a priority. Unfortunately, old profiles and a lacklustre recruitment process hinder these efforts.
“We must redefine the criteria of what it takes to be a board director in general. Current profiles aren’t necessarily modern. We should look forward and bring different mindsets aboard,” Ms Solvang explains. “The recruitment process is also an issue. Good positions are not always advertised. Companies need to do more to find female candidates and recruitment agencies need to expand their candidate pool.”
Recruiters are working to build a more diverse candidate pool, but greater effort is needed. Private companies, in particular, need to have additional nominations for their empty board seats. It is also vital they consider women who express interest directly.
“We are seeing women reach out to join boards, but it is not unusual for a company to ignore these efforts. Hopefully, networks can be expanded, and the process continues to improve over the next few years so these are not ignored,” Ms Solvang details.
Of course, companies are not the only ones involved in this process.
“Shareholders and shareholder values are a part of this equation as well,” Ms Solvang says. “They must understand the value of different perspectives and mindsets. Are they asking the right questions and searching for the right abilities?”
Speaking of abilities, women must have the necessary skills to serve on a board once appointed. This is a position that requires in-depth knowledge that isn’t always available.
“Board training and education are other aspects of this. Women, as well as men need experience and understanding of how the boardroom works and how to make money.,” Ms Solvang points out.
Finally, women may be concerned about being seen as a quota appointee. This may even prevent some from applying for board open seats. However, being on a board is far more important than any perceived optics.
“No one wants to be a quota appointee. They don’t want to be seen as simply a number or requirement. But I would say don’t worry about that. Focus on getting there because that is what matters most,” Ms Solvang says.
Global Change
The issue of gender diversity in boardrooms is not unique to Norway but the country’s gender quota approach may not work in other countries. For Ms Solvang, government intervention should not be required as this is a business-driven decision.
“This is not a country-specific or regional issue. It is an issue of corporate culture and not looking at the bigger picture. Companies with boardroom diversity see a better return on investment and better results,” Ms Solvang states. “Firms and shareholders not changing the culture and expediting diversity efforts are only harming themselves.”
In Asia, the message has struggled to gain traction. A report by BofA Securities found that female participation on boards in the region sits at 20 percent on average. This total has only grown by seven percent since 2010. There are some success stories to highlight, however.
As part of the Tenth Malaysia Plan released in 2011, the Malaysian government set a goal of having women hold 30 percent of all boardroom seats at stock exchange-listed companies. This target has not been achieved in any year, although the Malaysian Securities Commission noted the percentage of female representation in board positions currently stands at 29.7 percent with the quota likely to be reached in 2023.
Singapore’s listed companies, statutory boards and institutions of public character set a voluntary target of 25 percent female representation on boards to be reached by 2025. The only group to have not surpassed this threshold already are the top 100 listed companies where women account for 22.7 percent of board members as of June 2023, according to data from the Council for Board Diversity.
While progress is being made in the region, diversifying boards of publicly traded firms with no female representation has become a pressing issue. The MSCI All-Country World Equity Index found the majority of these were located in the Middle East or Asia.
The organisation’s research for 2022 revealed that 44 percent of publicly listed Indonesian companies had an all-male board, the highest figure in Asia. Taiwan at 27 percent, China at 25 percent and South Korea at 21 percent also had a large total of all-male boards. The latter is down 42 percent from the previous year.
Meanwhile, the number of all-male boards in Japan fell from 15 percent in 2021 to 7 percent in 2022. Expediting those efforts took on more significance after Norges Bank Investment Management announced it would vote against board nominations of Japanese companies it invests in that do not include any female directors earlier this year. According to Ms Solvang, this may be the start of a trend.
“Investors are becoming more willing to act when they see a lack of diversity on boards. They will no longer sit waiting for change to happen as they have their own ESG targets to meet. They have also seen that change is taking too long to happen in the boardroom,” Ms Solvang concludes.
Fact Box
- Norway introduced a 40 percent gender quota on the boards of listed companies in 2006
- A proposal requiring large- and mid-size private firms in Norway to have women comprise at least 40 percent of boards was submitted
- The number of women on boards at private firms has increased by only five percent over the past two decades in Norway
- Improving the recruitment process is one way to increase the number of women elected to boards
- Malaysia is close to reaching its goal of having women hold 30 percent of all boardroom seats listed companies
- More than 20 percent of publicly listed companies in Indonesia, China, Taiwan and South Korea have All-male boards
- Some institutional investors are voting against board nominations put forth by companies without any female directors
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