Norwegian companies sidestep government: passive resistance against forced gender quotas

Regular visitors to this blog will recall we recently gave exposure to an interesting paper from academics at the Norwegian School of Management:

We were recently in touch with one of the paper’s co-authors, Professor Oyvind Bohren, and he kindly supplied us with his latest paper, titled, ‘Changing organizational form to avoid regulatory constraints: The effect of mandatory gender balance in the boardroom’. The new paper was co-written with Siv Staubo, a (lady) lecturer in the same business school. Professor Bohren has kindly agreed to our request that we make the paper downloadable on this blog, for which we thank him. The paper’s full Abstract:

Norway is the first and so far only country to mandate a minimum fraction of male and female directors. We find that after the new gender balance law required at least 40% of each gender on corporate boards, half the firms exit to an organizational form that is not exposed to the law. This response suggests the gender balance law is costly, and we find the cost to be firm-specific. Firms exit more often when they are non-listed, successful, small, young, have powerful owners, and few female directors. The decision to enter is driven by similar firm characteristics, which reflect high costs of increased gender diversity and low value loss of abandoning the current organizational form. Mandatory gender balance tends to make complying firms end up with the right organizational form, but the wrong board. Conversely, firms exiting or not entering to avoid the new regulation may get the right board, but the wrong organizational form.

The full paper [revised draft received 16.11.12]:

121116 Bohren and Staubo paper (latest draft)

Our Research Director, Michael Klein, has reviewed the paper in detail, and he makes the following comments:

Bohren’s and Staubo’s paper is both interesting and methodologically robust. The paper firstly corrects a common misunderstanding. The Norwegian gender quota legislation is in force for limited liability firms, both those firms which are listed and – this is not widely understood – those which are not listed. Bohren and Staubo not only show that 51% of companies exposed to the quota regulation switched to another organizational form to avoided being covered by the law, but these firms varied systematically from firms that didn’t switch. Most firms seem to balance the costs of complying with quota legislation against the costs of switching organizational form, so the fact that 51% of firms decided to switch organizational form is a remarkable result.

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