As of January 2024, requirements for gender representation in board composition were adopted for a range of company types. The rules will be gradually phased in by 2028, based on company revenues and number of employees. In this article, we will take a closer look at the adopted changes, the background behind them, and who will be affected. Furthermore, we will offer some useful advice to companies now subject to the regulations and required to make changes to their boards in the coming years.
Background
The main purpose of the legislative amendment is to balance gender representation in Norwegian companies, ensuring diversity and effective use of resources. The rules have been incorporated into the Register of Business Enterprises Act, the Companies Act, the Central Coordinating Register for Legal Entities Act, the Private Limited Liability Companies Act, the Public Limited Liability Companies Act, the Foundations Act, the Housing Cooperatives Act, the Cooperatives Act, and the Financial Institutions Act. The implementation is intended to cover most forms of corporate organisation and will therefore affect many enterprises as the rollout is fully completed by 2028. The gradual implementation is regulated by a separate regulation. Except for the clarifications made for other company types below, our review will primarily focus on private limited companies.
Requirements for Gender Representation
From 1 July 2028, the following requirements for gender representation will apply:
- 3 or 4 board members = maximum of 2 of the same gender
- 5 or 6 board members = maximum of 3 of the same gender
- 7 board members = maximum of 4 of the same gender
- 8 board members = maximum of 5 of the same gender
- 9 or more board members = maximum of 60% of the same gender
The requirement applies to enterprises with either total operating and financial income exceeding NOK 50 million or more than 30 employees. If the enterprise is subject to the regulation, board members must be elected and registered within one month after the annual general meeting.
The new rules also apply to deputy board members and employee representatives on the board.
Transitional Provision
Until 1 July 2028, the rules will be gradually introduced, with an increasing number of enterprises becoming subject to the requirements. The thresholds are primarily linked to total operating and financial income, as well as the number of employees in the enterprise.
With a few exceptions, the transitional provision is designed so that enterprises must meet the requirements according to the following deadlines and thresholds:
- 31 December 2024: Total operating and financial income exceeding NOK 100 million
- 30 June 2025: More than 50 employees
- 30 June 2026: More than 30 employees
- 30 June 2027: Total operating and financial income exceeding NOK 70 million
- 30 June 2028: Total operating and financial income exceeding NOK 50 million
For the calculation of operating and financial income, the final balance sheet date of the annual accounts is the cut-off point for assessing whether the company is covered. Typically, this will be as of 31 December of the previous year, unless the company has a non-standard financial year.
The number of employees shall be calculated based on the percentage of full-time employment, not full-time equivalents, where an employee in a position exceeding 50% is counted as one employee, while an employee in a position below 50% is counted as half an employee.
There are no special rules for groups, so the thresholds are calculated individually for each company.
The rules mean, for example, that a company which either has operating and financial income exceeding NOK 100 million in the 2024 accounts, or more than 50 employees, and has three or more board members, must have adjusted its board composition by 30 June 2025.
Corporate legal consequences of failing to comply with the requirements
If the composition of the board does not comply with the requirements for gender representation within the specified deadlines, the company will not have a legally constituted board. The board is therefore not entitled to act or carry out the duties and obligations set out in the Companies Act. This applies both internally within the company and externally in relation to third parties. Decisions made by the board during the period in which it is unlawfully constituted, such as the signing of the annual accounts, will be invalid. A company without a legally elected board may ultimately be subject to compulsory dissolution. Individual board members may also risk board liability if someone suffers a loss as a result of the board not being competent to make decisions.
During the consultation round for the legislative proposal, questions were raised regarding the validity of the board if a board member voluntarily resigns, resulting in the board no longer meeting the gender representation requirement, and there are no deputy members available for supplementary election. In the proposal, the Ministry distinguishes between authority and legitimisation effects. Authority regulates the internal relationship within the company, while legitimisation effects concern the relationship between the company and third parties. The Ministry states that the election of a new board, even if it does not meet the gender balance requirements, may be postponed until the next ordinary general meeting, ‘… provided the board still has quorum, and the election falls under the general meeting’ cf. section 7.7.1. The Ministry further writes that ‘[i]f a board member resigns, the board is therefore not automatically invalid, even if the remaining board members do not meet the gender composition requirements’. However, the Ministry notes that potential circumventions may be subject to sanctions, for example if an elected and registered board member resigns immediately after being elected.
Important points to keep in mind when implementing the requirement?
The introduction of the gender representation requirement may present challenges for the companies affected, including:
- Access to board members: When the first phase took effect on 31 December 2024, it was estimated that approximately 4,400 enterprises were affected. Assuming all expand their boards or replace board members of the overrepresented gender, around 6,600 new board members are required in the first phase, with a deadline of 31 December 2024. Approximately 97% of these are women. If a company has not yet made adjustments for the 2024 financial year, it is now at risk of compulsory dissolution. In phase II, with a deadline of 30 June 2025, it is estimated that an additional 1,100–1,600 new board members will be required.
- Companies with foreign board members: If a company is to appoint a new board member without a Norwegian national identity number, the individual must be issued a D-number. This can be a time-consuming process. The application for a D-number must be accompanied by a notarised copy of the ID document. Furthermore, a declaration of consent must be submitted, or the individual must sign the registration form together with the rest of the board. All of this must be submitted on paper with original signed documents. Electronic signatures are not accepted. An (extraordinary) general meeting must also be held, and the minutes must be enclosed.
- Conflict with shareholder agreements or articles of association: Some companies have shareholder agreements or articles of association that provide guidelines for the composition of the board. These may conflict with the requirements for gender representation and therefore necessitate updates to ensure compliance with applicable legislation.
- Reducing the number of board members and other adjustments: If a company has two board members, it is not subject to the legislative amendment. Some companies may therefore choose to reduce the number of board members rather than ensure gender balance. Before opting for such a solution, it should be carefully considered what consequences this may have for the remaining board and the risks associated with board membership. Some companies choose to replace board members with an advisory body. This body pre-screens all board matters for the formal board, which makes decisions in accordance with the advisory body’s recommendations. It is important to note that, in principle, it is the elected board members who bear responsibility and risk for the board’s decisions.
- Overall board competence: It is important to note that the board is responsible for ensuring that, collectively, it possesses the necessary competence to govern the company. We therefore recommend that new board members are selected based on the expertise the company requires, and that those who take on board positions are aware of the obligations and risks involved in assuming the role.
- Registration of board members: Alongside the requirement, amendments have also been made to the Business Enterprise Registration Act and the Central Coordinating Register Act. These changes mean that companies subject to the requirement must themselves report this in the registration form to the Register of Business Enterprises, and additionally report the gender of all board members and deputy members. It must also be reported whether the board members are employee-elected. The same applies to foundations in the Central Coordinating Register. Registration of the board will be refused by the registration authority if the requirement is not met.
Specifically regarding private limited companies and public limited companies.
Specifically regarding private limited companies and public limited companies
For private limited companies, the new rules are set out in Section 6-11 a of the Private Limited Companies Act. The rules apply when the company has three or more board members and exceeds the thresholds for employees or operating and financial income mentioned above.
Deputy board members are counted separately, in that they are subject to the same gender representation requirements as outlined above. For example, if there are five deputy board members, a maximum of three may be of the same gender.
The Companies Act contains specific rules regarding employees’ right to board representation where the business has 30, 50 or more than 200 employees, see Section 6-4 of the Companies Act. If employees are represented on the board under this provision, Sections 6-11 a and b must be observed. If three or more board members are elected by and among the employees, not all of these board members may be of the same gender. The same applies to deputy members. However, the gender representation requirements for employee-elected board members do not apply if more than 80% of the company’s total number of employees at the time of the election are of the same gender.
Special types of private limited companies, such as state-owned private limited companies, state-owned public limited companies, and state enterprises, are also subject to the rules. This also includes any subsidiaries of these entities, cf. Section 20-6 of the Private Limited Companies Act.
Public limited companies have already been subject to gender representation requirements in their boards, introduced in 2006. The rules for public limited companies are now being amended in line with the new regulations. Section 6-11 a of the Public Limited Companies Act follows the same structure as the corresponding provision in the Private Limited Companies Act mentioned above.
Specifically regarding general partnerships and limited partnerships
The statutory requirement has been incorporated into the Partnership Act through new Sections 2-13 a and 2-13 b. The provisions on gender representation apply to partnerships where all participants are legal entities. For such companies, the partners’ meeting must decide to amend the board so that it complies with the legal requirement. The same thresholds for income and number of employees also apply here. Furthermore, the rules regarding employee representatives are identical to those described for private limited companies.
Specifically regarding foundations:
The gender representation requirement has been incorporated into the Foundations Act through new Sections 27 a and 27 b. The requirement applies to foundations that are engaged in commercial activity, have distribution as their purpose according to the articles of association, or where the state, county authority, or municipality is to appoint one or more board members.
For the foundations mentioned here, the transitional rules are shorter in duration. All of the specified types of foundations must have a board composition in accordance with the requirement by 30 June 2025. The exception applies in cases where public authorities appoint all or part of the board. If the public sector appoints the entire board, the rules apply immediately. Where the public sector appoints only part of the board, that part should have complied with the requirement as of 1 January 2024. In cases where employees appoint board members, the deadline for doing so is from the first ordinary election of employee representatives taking place after 30 June 2025
Specifically regarding housing cooperatives and cooperative enterprises
The requirement for gender representation has been included in the new Section 6-4 a of the Housing Co-operatives Act. The requirement applies to housing co-operatives with total operating and financial income exceeding NOK 50 million, more than 30 employees, or more than 500 shareholders.
The inclusion of the number of shareholders as a basis for being subject to the requirement distinguishes this type of company from others.
In the transitional provision, the number of shareholders becomes part of the implementation, as housing co-operatives with more than 50 employees or more than 500 shareholders must comply with the requirement by 30 June 2025.
The same applies to co-operatives. Entities with total operating and financial income exceeding NOK 50 million, more than 30 employees, or more than 500 members are subject to the requirement, which must be met by 1 July 2028. The transitional provision states that in co-operatives with more than 50 employees or more than 500 members, the board must comply with the requirement by 30 June 2025, in the same manner as housing co-operatives.
Specifically regarding financial undertakings and financial groups
Financial undertakings and financial groups shall follow the rules in the same manner as those set out in the Public Limited Liability Companies Act regarding gender representation, cf. Section 8-4 of the Financial Undertakings Act.
The way forward
Adapting to the requirements for gender balance may be perceived as challenging. Some choose the “easiest way out” by reducing the number of board members. Doing so means, firstly, that the responsibility for the company’s operations is distributed among fewer board members than before.
What is most appropriate must be assessed specifically for each individual company.
Here, it is not necessarily the case that “one size fits all.”
The complexity of the business is of significant importance.
If the board itself does not possess the necessary and/or desired expertise, it must ensure access to such expertise either by seeking advice from professionals or by establishing advisory bodies that form part of the company’s governance.
The Brønnøysund Register Centre verifies that all new board registrations comply with the requirements, but we are not aware of how companies that do not report board changes are followed up. Boards that are invalidly composed may risk liability towards third parties from the day the board no longer meets the required composition, but there is no corporate supervisory authority in Norway that reviews boards currently registered and invalid under the legislative amendment.
The Minister of Trade and Industry has been challenged on this in a written question from Member of Parliament Lene Westgaard-Halle, but in response, the Minister referred to the responsibility of the registration authority to reject the registration of a board that does not meet the requirements.
The answer therefore provides no further guidance on how long an invalidly composed board may remain registered before receiving notice of compulsory dissolution of the company.
However, it is reasonable to assume that necessary adjustments must at least be made to enable the company to submit its annual financial statements.
Our clear advice to all businesses subject to the requirement and that have not yet complied is to do so as soon as possible, and in any case well before the board is to sign the annual financial statements ahead of the ordinary general meeting.
Our advice to businesses that will be affected when the thresholds are lowered in the coming years is to start as early as possible in assessing how the company can best adapt to the regulations.