The Norwegian government’s proposal to introduce a requirement for at least 40 per cent gender balance on boards was adopted on 22 December 2023. The change in law came into force on 1 January 2024.
Companies of a certain size must comply with new regulations that impose requirements for gender balance on boards. The aim of the change in law is to promote equality in the management of Norwegian companies and will eventually cover around 20,000 businesses. The proposal has been prepared in collaboration with NHO and LO.
Efforts are constantly being made to achieve a better gender balance on the boards of Norwegian companies. Historically speaking, there has been development, but in 20 years, for example, the proportion of women on the boards of Norwegian joint-stock companies has only increased by 5 per cent. In order to speed up the development, the government wants to introduce requirements for the gender composition of Norwegian boards.
The change has been debated, as some women themselves believe they will be elected because of their competence, and not because of a legal rule. However, the legislator is of the opinion that this is the best way to strengthen equality and diversity in the business world. The requirements must ensure a better gender balance in the companies’ management, and the overall competence must be used as a resource in the business world. In this way, the government conducts an offensive equality policy, which aims to smooth out the power structures in society.
What does the requirement for a 40% gender balance on boards mean?
The change in law means that requirements will be introduced for the gender composition of the boards of Norwegian companies. Today, only public limited companies (ASA) have introduced a requirement of at least 40 per cent gender representation. The government will make similar demands on several companies:
- There shall be a requirement for representation of both sexes on the board in both joint-stock companies, responsible companies, foundations, housing associations and cooperatives.
- In companies with at least three board members, a maximum proportion of between 67 and 50 per cent of the same gender must be required, which in practice amounts to a 40 per cent requirement.
- Public limited companies’ rules on gender representation are continued.
Which companies are covered by the new rules?
- Those who already have such requirements according to the regulations today.
- Limited companies, cooperatives or housing associations that either have more than NOK 50 million in total operating and financial income, or more than 30 employees. The same applies to responsible companies that only have legal persons as participants.
- Cooperatives or housing associations with more than 500 members/unit owners.
- Foundations that are in business or whose purpose is distribution, or where a public authority elects at least one board member.
The requirements mean that several companies must make changes to the composition of the board. Norway is the first country in the world to introduce such requirements. Through such an introduction, within a few years there will be broad gender representation in the management of Norwegian companies, which has a significant impact on value creation in Norwegian society.
When will the change in law be introduced?
The requirement will be gradually introduced in the respective enterprises from next year onwards. Where there are requirements for the composition today, the rules enter into force without transitional rules. The introduction will be carried out in five stages, over a period of around four years.
- First stage: to be fulfilled no later than 31 December 2024. Introduction for companies with more than NOK 100 million in total operating and financial income.
- Second stage: must be fulfilled no later than 30 June 2025. Includes enterprises with more than 50 employees, cooperatives and housing associations with more than 500 members and unit owners, and foundations that are in business or whose purpose is distribution.
- Third stage: to be fulfilled no later than 30 June 2026. Includes enterprises with more than 30 employees.
- Fourth step: must be fulfilled no later than 30 June 2027. Includes enterprises with more than NOK 70 million in total operating and financial income.
- Fifth step: to be fulfilled no later than 30 June 2028. Includes enterprises with more than NOK 50 million in total operating and financial income.
On 1 July 2028, the transition period has expired, and the gradual implementation must be introduced.
What sanctions can the companies receive if the new rules are not complied with?
If the companies do not comply with the new rules, they are not a valid composite board. A board that is not validly elected will not have the authority to represent the company externally, or to take legal action on behalf of the company. This means that decisions made by the board during the period in which it has not been legally constituted will not be considered valid.
Violations of the new rules could therefore have serious consequences for the companies themselves and their co-contractors. In the extreme, a breach of the requirements may lead to forced dissolution of the companies.
In order to correct an illegally composed board, a new general meeting must be held, where a board that meets the requirements for the gender composition is elected, before a new registration notice can be submitted.
Written in cooperation with Ingjer Ofstad, Director BDO Lawyers