After Norway introduced a mandatory 40 percent quota of women on (supervisory) boards of directors for all publicly listed firms, the value of those companies has decreased as a result for several reasons. This is one of the key findings of a study conducted by two US American Finance professors from the University of Michigan. The researches examined a total of 248 listed Norwegian companies using stock market information. First, they found that the imposed quota caused a significant drop in stock prices following the announcement of the law in 2003. At that time, women held nine percent of board seats in total. The study also found a significant decline in Tobin’s Q (key performance indicator for value) over the following years: the value of all the companies affected, decreased by 12.4 percent over the period when the female/male ratio had to be increased by 10 percent.
The main reason for the decline identified by the researchers was the fact that companies had to appoint relatively inexperienced women to the board: They were on average eight years younger than their male predecessors and had significantly less top management experience (measured by years in CEO positions). The situation was also caused by the short time span the law allowed the companies to comply with the quota.
More in-depth analysis showed that the numbers of female directors serving as chairperson or CEO remained steadfast at less than five percent. The introduction of the Norwegian quota was also hoped to improve this situation as a result of more women on the supervisory boards. “We should not jump to drastic or all too negative conclusions,” Diversity expert Michael Stuber warns. Many more studies in fact prove the superior performance of gender-mixed teams and of companies with mixed leadership teams. One from Credit Suisse Research was portrayed in a previous issue of the German edition of this newsletter, and seven more are included in the International Business Case Report (IBCR 2012-XL), which also boasts six more studies confirming a positive relation of Diversity Management and shareholder value. The most recent study on the matter was conducted among Israeli companies. It found that boards with three or more women directors were twice as likely to request further information and to take decisions leading to higher return on equity and net profit margins compared to companies with less gender diversity. Moreover, all directors were found to be more involved when at least three women directors were in board meetings.
“What characterises the cases with positive impact of Diversity is the acceptance of differences in the team, especially when the mix has been developed organically, without artificial pressure and based on meritocracy,” Stuber summarises the evidence from more than a decade of research. He has also compared progress of large public employers that have to obey to strict gender legislation against voluntary progress in the private sector. Also there, he found lower relative progress in the regulated environment compared to relative progress based on voluntary efforts – the former, however, starts and ends on a higher absolute level.
Nevertheless, EU Justice Commissioner Viviane Reding has pushed towards a European-wide mandatory women quota of 40%. On Wednesday 24 October 2012, the European Commission has postponed the decision for or against the proposed law until November. In order for the draft law to be published, all 27 Commissioners would have to agree; then all National governments of member states must approve the law and finally the European Parliament. But the Corporate European landscape has evolved significantly since the Norway bill triggered extensive discussions. As a result, the boards of most listed companies have (gender) Diversity on their radar and look into a business-driven approach to implementation. A promising perspective.
Find out more about the business case for gender diversity and diversity at large: here