More women in corporate boards, but few taking a show at CEO job

Monday February 22 2010


Arni Hole, director general of the Equality Ministry, remembers the shock wave that went through Norway’s business community in 2002 when the country’s trade and industry minister, Ansgar Gabrielsen, proposed a law requiring that 40 per cent of all company board members be women.

The idea seemed radical, if not for its goal, then for the sheer magnitude of change it would require.

Back then, Norwegian women held less than seven per cent of private-sector board seats; just less than five per cent of chief executives were women.

After months of heated debate, the measure was approved by a significant majority in Parliament.

Many prominent business leaders dismissed the 2003 law as a political stunt and argued that Norway did not have enough experienced women to meet the quota.

Nearly eight years on, the share of female directors at the roughly 400 companies affected is above 40 per cent, while women fill more than a quarter of the board seats at the 65 largest privately held companies.

To many feminists, this is the boldest move anywhere to breach one of the most durable barriers to gender equality.

Indeed, the world has noticed: Spain and the Netherlands have passed similar laws, with a 2015 deadline for compliance.

The French Senate will soon debate a bill phasing in a female quota by 2016, after the National Assembly approved the measure recently. Belgium, Britain, Germany and Sweden are considering legislation.

But as the dust has settled, researchers are grappling with some frustrating facts: Bringing large numbers of women into Norway’s boardrooms has done little — yet — to improve either the professional calibre of the boards or to enhance corporate performance.

In fact, early evidence from a little-noticed study by the University of Michigan suggests that the immediate effect has been negative on both counts.

And the six-fold increase in women as directors has not yet brought any real rise in the number of women as chief executives.

In the past 50 years, women have gained ever more prominence in politics and society.

A decade into the 21st century, however, their corporate power remains slight — although women represent half or more of the work force in many countries.

In the European Union, 9.7 per cent of the board members at the top 300 companies were women in 2008, versus eight per cent in 2004, according to the European Professional Women’s Network.

In the United States, roughly 15 per cent of the board members of the Fortune 500 companies are women, while at the top of Asian companies, women remain scarce: In China and India, they hold roughly five per cent of board seats, in Japan, just 1.4 per cent.

Traditional tendencies die hard. The higher up the corporate ladder, the greater the perceived risk associated with choosing managers who are not “homogenous,” said Hilde Tonne, an executive vice president and head of communications at Telenor, a global telecommunications company based in Oslo. “Diversity is not as easy as you move up.”

When the Norwegian government first made its case for the quota, the number of women on boards had been growing by less than one percent a year, for a decade.

It would have taken 200 years, Ms Hole said, to reach 40 per cent.

The quota was sold to Norway’s business community as a way to gain greater social equity and competitive edge: “Profit is made by employing the best people, regardless of gender,” she said.

Experience vs social equity

Some see potential risks in sacrificing experience for the sake of social equity.

“When you suddenly replace 30 per cent to 40 per cent of your board with inexperienced people, it is easier for those new members to be manipulated — that’s just common sense,” said Ruilf Rustad, a professional investor who has been chairman of at least 20 listed companies over the past 10 years.

As a newcomer “it’s not always easy to see what’s going on in a board,” he said, adding that women who rise to boards too soon risk damaging their careers if they fail to perform.

Proponents argued that the effects of greater boardroom diversity were more subtle, however, and that the arrival of fresher female talent brought genuine strategic benefits.

“If you look at the typical board of a European company today, you see almost nothing but white males between the ages of 50 and 65,” said Elin Myrmel-Johansen, who at 36 is an executive vice president at Storebrand, the Norwegian financial services group.

“We don’t need everybody to be the same age, from the same schools, reading the same magazines. Often younger people are better able to spot new market trends.”

Men perform better and come better prepared when there are women in the room, she said. “Women are taking the place of the mediocre men,” she added. “When you expand the universe of candidates, the existing ones have to work harder.”

Critics say boardroom quotas cannot address the question of why fewer women are seizing leadership opportunities.

“When the law says you must have 40 per cent women, of course you can get to 40 per cent — that is not an achievement,” Mr Rustad said. “An achievement would be to find a way to get women to rise above middle management. So far we don’t have an answer for that.”

Mr Rustad and others predicted that, despite the initial adjustment costs, women’s increased visibility as directors would eventually lift many of them into top management.

Ms Tonne, an early skeptic, is today among those convinced that the longer-term effects of legislated diversity outweigh the short-term drawbacks.