On Monday, the research team at Catalyst released their 2012 Census of women board directors. They found women held just 16.6 percent of board seats in corporate America. As Bryce Covert notes, this is the seventh consecutive year without significant growth in the percentage of women on corporate boards. What can be done?
We can look at Norway for one path forward. In 2002 only 7.1 percent of boards consisted of woman. Though up from 3 percent in 1993, progress was slow. This is in a country with significant gender equality, where over 80 percent of women work outside the home. In order to jumpstart gender equality in the boardroom, the Norwegian government decided to use the law to speed things up.
In 2002 a trade minister proposed a law requiring 40 percent of company board members to be women by 2005, and in 2003 the Norwegian Government passed it. Compliance with this law was encouraged but voluntary, with no penalties in place. Few companies, only around 20 percent, were following this rule by late 2005. In response the new center-left government announced that this quota was required, with a penalty of forced liquidation for those companies that didn’t make the new deadline of December 2007.
By mid-2008 there was mass compliance with the law. The female share of corporate directorships in Norway now stands at 42 percent. The reach of the law goes beyond the original companies, with compliance for many firms that fall outside the law’s reach.
Studies about the impact of this law on firms and stock prices have mixed results. One study at the University of Michigan examined stock prices around the time when the policy was first proposed in 2002. It found stock prices declined for firms that would need to hire more women, because as a result the boards would have younger and more inexperienced people on them. Another study by Knut Nygaard of the Norwegian School of Economics, looks at the penalty that was introduced at the end of 2005 and didn’t find a negative stock market impact, with the possibility that this would bring more beneficial outsider members to boards that needed new and accountable members.
Another study by David Matsa and Amalia Miller found that corporate strategy changed with new women leadership. Boards that brought on more women were less likely to initiate layoffs of workers, which kept up a higher level of employment at these firms. They interpret this as a short-term transfer from shareholders to employees of the firm, so that more stakeholders are seen in the project of the corporate mission.
This reform immediately dismantled the initial and deeply entrenched lack of opportunities that block many women from climbing up the corporate ladder. Discrimination, a broken career path due to families, a lack of mentors, and the general old boys club immediately are removed from access to elite leadership. And with the old club disrupted, there’s room to extend the ladder down for the development of a larger pool of talent.
Arguments that derive their logic from some sort of essential characteristics of women should be taken with large grains of salt, lest they devolve into gender stereotyping dressed up in faux-scientific language. But to the extent that studies that find women being generally more focused on the long-term, more women on corporate boards means less trying to move short-term stock prices and more on creating long-term value. A larger focus on the long-term might means less of the crisis and fraud that has plagued the male-dominated financial industry over the past decade.
Other countries are taking note, with France and Spain enacting similar laws. We should remember that the public creates corporations. Corporations benefit from numerous legal protections that come with incorporation. The public gives corporations their charters, and requiring certain obligations with that can be a necessary and fruitful purpose of how we set those powers. At the very least, a serious conversation about this might be able to scare current companies into action.
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