2014-03-04

Co.Exist

Want More Independent Decisions? Put More Women On The Board

What happened when Norway implemented a law creating a quota for the number of women running a company.

Ahead of their hyped IPOs, Facebook and Twitter had zero females on their boards. Both firms appointed women after a heaping of public criticism. In total, eight of 13 Silicon Valley companies that launched IPOs in 2013 had no women directors.

But while the challenge for some U.S. companies is even to get a single woman director, other countries have gone much further. In Norway, since 2006, about 500 public firms have had to comply with a groundbreaking law that set a hard quota of at least 40% female board members. If they failed to do this, they could be shut down.

Researchers have been studying the effects of the law, which set a global precedent and has inspired other countries to set similar, though often less extreme rules. Overall, the law has been successful at achieving its diversity goals, but the wider effects are debatable. The latest study, conducted by PhD candidate Siv J. Staubo at the BI Norwegian Business School, finds a surprising indirect consequence: Since Norwegian companies have added more female board members, the proportion of "independent" directors—those without a financial or material stake in the company—has risen considerably, because the companies had to pull women from outside, since they didn't have enough high-ranking women within the companies to put on their boards.

"Before the quota law took effect, almost half (46%) of board members were independent (in 2002). Once the companies had adapted to the new law, this proportion had increased to two-thirds of all board members (67%) in 2008," says an article on the business school’s website. Women were the obvious reason for the increase—more than 8 of 10 female board members in public limited companies were independent. "This is an unintended effect of the new law," says Staubo.

The bigger question is whether this extra independence is good for companies. Staubo believes that’s harder to tell. A board has two main functions: Control and advice, she says. Independent board members will be better at the former than the latter, she believes, because being a good advisor can require more in-depth knowledge about the business that independent members will lack. "The new law on gender representation has generated far more independent board members than the companies felt was appropriate before the law came into effect," she says.

Either way, gender diversity can lead to more independence—and better performance—through other modes. A recent survey of 600 board directors showed that women tended to "shirk tradition, consider the interests of all stakeholders, cooperate, and be more inquisitive," while men based more decisions on tradition, rules, and regulations. Other research has shown that companies with at least one woman in their boards perform better for stockholders than those without—especially during tough economic times—though the reasons why this would be are speculative. Many other studies exist showing the bottom line value of far more diversity in the upper echelons of corporate leadership.

Interestingly, the finding from Norway that women directors tend to be pulled from outside of companies could go away if more women break the glass ceiling and serve in the upper echelons of corporate leadership. Twitter’s CEO Dick Costolo called his firm’s lack of diversity a "pipeline issue," a defense that may be especially true for venture-backed startups in the technology sector (though outsiders seemed to have no trouble coming up with suggestions for female Twitter board members). Investors often serve on boards, but the field of venture capital lacks female partners even more than the tech sector itself.

Norwegian women who also happened to be experienced corporate executives found themselves in high demand after the 2006 law was passed. According to the Guardian, a woman named Mai-Lill Ibsen held more than 185 boardroom seats at one point. Technically, 165 of them were attached to one position at a foundation, but that's still far from ideal. Hopefully, laws like Norway's will inspire more gender diversity from inside companies, so that super-heroines like Ibsen are not needed anymore.

[Image: Abstract via Shutterstock]

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2 Comments

  • Yahoo finance came out with a bunch of studies done showing that boards with gender diversification ended up achieving higher stock prices than those dominated by all males. As the issue is pushed, I'd say the main deciding factor in adopting the idea of gender diversification resides in board activists as well as pressure from shareholders to do so. -Nikki from Accelerate Mgmt Corp Governance via http://bit.ly/P0fMKn

  • Jess Helmke

    Err. It has nothing to do with diversity. That has it's place as a tool for cultures to better reach solutions.

    Which is separate from an objective of 'independent decisions'.

    From over here, the Rembrandt (company in the hot seat) looks like it discovered when having more time to think on its own, more useful decisions were finally made.

    The trick, William Potter, is attentive translation between independent thought and collaborative review; where our neglected communication skills block vision of a (or the) clear decision.

    So it's about correct use of language and 20/20 vision of the matter at hand.

    So stop with the hippie stuff of the 60's, like gender equality and strength in diversity distractions; they are only a cliche' in our time.

    And just say what you want to say. Or advocate for your belief more concisely.

    Because, truthfully, I'm fed up with being guided by liars and think the world is a big girl now, and could use some reality and purity.

    :)