The Norway Numbers – Effects of quotas requiring women on corporate boards
Amy Dittmar, associate professor of finance
Ross School of Business, University of Michigan
Excerpt from New York Times
March 22, 2010
Women hold only 15 percent of board seats in the U.S. Given that women make up a much larger percentage of college and professional school graduates (including M.B.A.’s), this representation seems low.
The Securities and Exchange Commission recently began requiring public companies to disclose whether they consider diversity in identifying directors. Alternatively, many European countries have passed or are considering quotas.
Should the U.S. consider similar rules and if so what would be the effects? We can gain some insight into this question by examining the law change in Norway. In a recent study I did with Kenneth Ahern, also at the University of Michigan, we examined the effect of the Norwegian law on boards and firm value. We found that the women that were added to boards to comply with the law had less experience in upper management than their male counterparts and than women who were chosen before the law went into effect.
On average, the firms experienced a 2.6 percent drop in company value at the announcement of the new law and, if they had no women on their board, they experienced a 5 percent drop in value. Firms experienced further declines in value over the year that they changed their boards to comply with the law.
However, the drop in value was not because the firms put women on the board but because they put less experienced directors on the board. In particular, the lack of upper management experience had a strong negative effect on a firm’s value.
Considering this evidence, the Norway experience demonstrates that there are costs to quotas. But since the value loss is due to less experience rather than sex, it raises the related question: Why are women not more prevalent in upper management?
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