Effect Norway’s women quota law positive
Having more women at the top is often seen as a politically correct but ineffective effort. However, when looking at the Norway’s women quota law, the Dutch economists Lotte Braeken and Esther-Mirjam Sent from Radboud University Nijmegen, prove with empirical evidence that the Norwegian initiative is not only effective but also beneficial.
Norway, a model country
According to the recently published Female Board Index of Erasmus University Rotterdam, the number of women at the top of listed companies in the Netherlands is 10.4%. The difference with Norway is large, where women hold 40% of the top positions today. And the result: the Norwegian quota law leads to positive short-term effects on the performance of Norwegian companies. This makes the slow increase in the number of women in the boardrooms in the Netherlands a missed opportunity.
The World Economic Forum places Norway near the top in its list of gender equality. This is partly due to the radical law that requires listed companies to have their management be made up of at least 40% women. The law encompasses approximately 500 companies. After a transition period of several years, the law was officially enforced on the first of January, 2008. If a company does not meet the requirements, the worst case scenario would be a termination of business activities in Norway. The law has ensured that Norway today has the highest percentage of female board members in the world. Practically all companies abide by the law, only a few are legally permitted to not having to comply.
But does it work?
On Monday, September 13th, 2010, a renowned newspaper in the Netherlands, the Volkskrant, stated that the administrative jobs that women in Norway hold seem to be the ‘less important’ jobs. Does this mean that the Netherlands should not follow the Norwegian example? The Dutch do appear have an allergic reaction when it comes to emancipation. “That’s discrimination.” However, one does not have to be emancipated to be in favor of quota like in Norway. Why? The Norwegian companies perform better, and that in times of an economic crisis. In other words, this is ‘hard’ economics and not ‘soft’ emancipation for women.
It is still too early to assess the long-term effects of the Norwegian law, but we can already evaluate the short-term effects on the performance of the companies that were affected by the quota. The performance of these companies can be measured using four indicators, that is: ‘Tobin’s Q (the ratio of market value to book value), return on assets (ROA), return on equity (ROE) and Earnings per share (EPS).
No, you are not reading the financial newspaper pages, but with these hard economic data, we can evaluate the effects of the Norwegian law. According to our statistical tests, the mandatory administrative change has had a significant positive effect on two indicators; ROA and EPS. The effect on ROE is also positive, but lacks the necessary significance. Tobin’s Q is the only performance indicator to which the mandatory changes in governance had a negative effect, again without the necessary significance.
In short, the indicators used in all our statistical tests show that the Norwegian quota law has had a positive effect on the performance of companies. This is a good incentive for the Netherlands to consider including such measures in their legislation.
Will the Netherlands follow?
In 2009, the House of Representatives showed support for a plan by Labour MP Paul Kalma which makes it mandatory for the board of the large companies to consist of a minimum of 30% women. If a company does not make the lawfully established targets by the year 2016, it must explain why it was not able to reach the required numbers and also come up with an improvement plan. The plan subsequently passed the Dutch Senate.
The Dutch initiative is a step in the right direction but it does not go as far as the Norwegian example. This is unfortunate for two reasons. Firstly, 30 percent is not enough. Research shows that women are not seen as an individual unless a team consists of more than 35 percent women. Secondly, a target is noncommittal. But for now this is the best that could be achieved in the Netherlands.
As Loesje, an international free speech organization, wisely wrote: “Children are the future, provided their mothers also have one.” And as the Norwegian case shows, company results are better, so the stagnation of the rise of women to senior positions in the Netherlands is a missed opportunity.
* This is a translation of that article that appeared in Dutch on the site of Me Judice.
Esther-Mirjam Sent, Professor in Economic Theory and Economic Policy, Radboud University Nijmegen (NL), and Member of the Senate of the PvdA
DNBN Guest Blogger
The DNBN Management thanks Ms. Esther-Mirjam Sent for sharing and translating this article