Effect of board quotas on female labour market outcomes in Norway

And the short answer is, not much.

After Norway passed a law, in late 2003, mandating that public limited-liability corporations create boards with no less than 40 percent of each gender represented, the number and quality of women board directors rose and the pay gap vis-a-vis male board members shrank. But 10 years into this experiment, which now is being copied in other countries, there's not much evidence of a trickle-down effect for other women in the workforce,

In their paper Breaking the Glass Ceiling? The Effect of Board Quotas on Female Labor Market Outcomes in Norway authors Marianne Bertrand, Sandra E. Black, Sissel Jensen, and Adriana Lleras-Muney write,

We find no evidence of significant differential improvements for women in the post-reform cohort, either in terms of average earnings or likelihood of filling in a top position in a Norwegian business.

At best, the reform may have increased women's representation in the C-suite - top executive positions in the firm - of targeted firms, a very small group of individuals.

The representation of women does not improve anywhere else in the [targeted] firms' income distribution (top 95th percentile, top 90th percentile, top 75th percentile). We also see no improvements on gender wage gaps among top earners and find no evidence of changing work environments in affected firms.

Additionally, there is no evidence that the rise in female board members inspired younger women to consider business careers or delay child-rearing in order to further careers. In the authors' survey of 763 students at the prestigious Norwegian School of Economics, from which many board members have graduated in the past, fewer than 10 percent of women said the reform encouraged them to get a business degree.

If anything, the share of women obtaining business degrees fell after 2004 (except for 2007).

The authors also note that

[...] we see no apparent reduction in the large gender gap in earnings that emerge in the first few years post graduation.

Now what of the law of unintended consequences?

When faced with the quota, firms could either choose to comply with the law or change their status from public to private. The paper shows that a large number of public limited liability companies changed their status to private after 2003. Of the 563 companies that were ASA - that is, public limited liability companies in Norway - in 2003, only 346 remained ASA by 2005 and only 179 by 2008. Focusing on companies listed on the stock exchange prior to the reform (a strict subset of all ASA firms), it has been shown that the likelihood of delisting anytime between 2003 and 2009 was larger among those with a smaller pre-quota share of women on their board, suggesting that many firms might have delisted to avoid complying with the mandate. Thus the final number of new positions reserved for women was ultimately smaller than expected when the law was passed.

Also, using publicly available data, Matsa and Miller (2013) examine the effect of the quota on accounting performance. Using firms in Sweden as a control group, they show that the change in the board quota law led to a decline in operating profits.

Isn't this the real issue? If having more women on company boards really does lend to reduced profits then you can see why firms may not be too keen on having them.

The paper's abstract reads:

In late 2003, Norway passed a law mandating 40 percent representation of each gender on the board of publicly limited liability companies. The primary objective of this reform was to increase the representation of women in top positions in the corporate sector and decrease gender disparity in earnings within that sector. We document that the newly (post-reform) appointed female board members were observably more qualified than their female predecessors, and that the gender gap in earnings within boards fell substantially. While the reform may have improved the representation of female employees at the very top of the earnings distribution (top 5 highest earners) within firms that were mandated to increase female participation on their board, there is no evidence that these gains at the very top trickled-down. Moreover the reform had no obvious impact on highly qualified women whose qualifications mirror those of board members but who were not appointed to boards. We observe no statistically significant change in the gender wage gaps or in female representation in top positions, although standard errors are large enough that we cannot rule economically meaningful gains. Finally, there is little evidence that the reform affected the decisions of women more generally; it was not accompanied by any change in female enrollment in business education programs, or a convergence in earnings trajectories between recent male and female graduates of such programs. While young women preparing for a career in business report being aware of the reform and expect their earnings and promotion chances to benefit from it, the reform did not affect their fertility and marital plans. Overall, in the short run the reform had very little discernible impact on women in business beyond its direct effect on the newly appointed female board members.

Ref.:

• Matsa, David A., and Amalia R. Miller, 2013. “A Female Style in Corporate Leadership? Evidence from Quotas.” American Economic Journal: Applied Economics, 5(3): 136-69.