Boards of directors, codetermination and gender representation: Societal and business case illustrations from Norway Morten Huse, BI Norwegian School of Management, Oslo

Corporate governance and boards of directors Corporate governance is a fight between ideologies, and the ongoing corporate governance discussion cannot be understood without relating to stakeholder perspectives and CSR. CSR and corporate governance are strongly interrelated The board of directors is the top decision making body in corporations, and it is important in most corporate governance discussions. The board is the formal corporate decision-making body in between business and society. Who should be the members of the board, which tasks should board be involved in, and how can the board members contribute to board task performance? Shareholders, politicians, employees, women, etc? Control tasks can be divided into CSR control, strategic control, behavioral control and budget control The board process literature focus on the use of knowledge and skills, e.g. in creative discussions, openness and generosity among the board members, the meeting structures, board development activities, and the quality of board leadership

Illustrations from Norway Norway has traditionally been characterized by a high emphasis on CSR, the welfare state and social-democratic values, and a participative (theory Y) and feminine (Hofstede) leadership style. Norway has a system with ERs for about 40 years Norway has a history with women in politics, and there have been requirements on gender representation in public administration for many years

Codetermination and employee elected directors Different systems of employee elected directors exist The societal case: What is a corporation? – more than input from agency theory, financial economics and shareholder supremacy activists? How to relate to a broader set of stakeholders than providers of equity capital? Employee elected directors (ER) is one CSR suggestion receiving increased attention after the large corporate scandals (Enron, Worldcom, etc) The business case Property rights theory and team production: Which voting right distribution creates the most value? Do ERs contribute to corporate value creation and board effectiveness? How can ERs contribute to corporate value creation?

Women directors International discussion on women in management, politics and boards of directors The societal case is that few women are in traditional power positions and there is a need to increase the number. Various programs have been developed to increase the number, including arguments, training, selection, networks, mentorships, investment funds, and legal interventions The business case is that firms will be better off with women on corporate boards – additional knowledge, diversity, values, etc The societal case and business case arguments are often mixed In Norway a law was made requiring 40% of women on corporate boards – previous experience from public administration and state owned companies Other countries now carefully watches the experiences from Norway. Spain has already made a similar law

The value creating board surveys Large scale surveys about actual board behavior Instrument developed through a series of earlier surveys Main surveys conducted in Norway 2003/ /2006 Data collected from CEOs, board chairs and other board members (incl ERs and women) Comparative studies are conducted in other countries as Sweden, Italy, the Netherlands, Belgium, Germany, Turkey, Denmark. Preparations are also done in other countries Main questionnaire contains more than 200 questions related to actual board behavior Questions based on the framework in Huse, M “Accountability and creating accountability: A framework for understanding behavioural perspectives of corporate Governance” in British Journal of Management Concepts, measures and results will be presented in: Huse, M “Boards, Governance and Value Creation: The Human Side of Corporate Governance” Cambridge University Press Huse, M “The Value Creating Board” Routledge

Results Codetermination (ER – employee representatives) Not all are using possibilities ER sometimes perceived as B- members ER negatively related to behavioral control, but generally disappears when… Understanding boardroom processes Creative discussion Perceptions as B-members ER positively related to strategic control Women directors Doubling the number of women in few years Women rarely perceived as B- members Women positively related to CSR control, but when….. Understanding boardroom processes Creative discussions Women with different background Women positively related to strategic control

Challenges and questions for discussion 1.What can the society and politicians learn from these Norwegian CSR interventions 1.Codetermination? 2.Women quotas? 2.What can the business societies and boards learn from these governance interventions? 3.Which should be the academic and theoretical reflections

External actors: power and stakes Internal actors: power and stakes Resources and context, incl firm size, life cycle, ownership, industry, etc Value distribution (among various stakeholders) Board membersBoard working styleBoard level outcomeCorporate level outcome Board role expectations/theories: Agency/Stewardship, RDT, RBV, etc Board members: Composition (incl diversity), competence and characteristics, compensation Interactions and reactions to presure: Trust, emotions and processes inside and outside the boardroom Decision-making and Involvement: Cognitive conflicts, preparation and involvement, openness and generosity, creativity, critical attitudes Formal and informal rules andstructures: Codes, leadership, committees, evaluations Actual board task performance: Firm performance: Innovation, Internatio- nalization, Growth, Profit, Revenue, CSR, etc September 2003/2004 © Morten Huse