Effective from 1 January 2024, new regulations on gender balance in the board of directors of medium and large business enterprises have been implemented in Norway, following the same pattern as the current gender requirements for public limited liability companies. This is a significant step towards gender equality in the entire business sector, aiming to ensure diversity driven by the policies of the current government.
The new regulations apply to private limited liability companies, partnerships, co-operatives, and foundations of a certain size. The criteria for applicability are either total operating and financial income exceeding NOK 50 million or a workforce of more than 30 employees. The new regulations will affect approximately 20,000 enterprises and implementation will be phased as set out below. The assessment is made individually for each company, regardless of its group affiliation.
The gender representation requirement is determined by the last balance sheet date. If an entity exceeds the specified thresholds at the balance sheet date, it must comply with the gender representation requirements within one month following the initial subsequent annual general meeting. The practical solution is that new board members should be elected at the annual general meeting following the relevant balance sheet date.
Requirements based on board size
The gender diversity requirements for the board are based on its size. The rules will not apply for entities where the board of directors only have one or two members. For companies with at least three board members, the following rules apply:
- 3-4 board members: Maximum of two of the same gender
- 5-6 board members: Maximum of three of the same gender
- 7 board members: Maximum of four of the same gender
- 8 board members: Maximum of five of the same gender
- 9 or more board members: Maximum of 60% of the same gender
For employee-elected board members, both genders must be included when three or more members are elected, except when one gender comprises over 80% of the workforce. Shareholder- and emplyy-elected board members must be assessed separately.
The new provisions mandate changes to board composition for a significant number of entities. To facilitate this, the scope of application will be implemented in the following phases:
- 31 December 2024: Companies with total operating and financial income exceeding NOK 100 million.
- 30 June 2025: Companies with more than 50 employees.
- 30 June 2026: Companies with more than 30 employees.
- 30 June 2027: Companies with total operating and financial income exceeding NOK 70 million.
- 30 June 2028: Companies with total operating and financial income exceeding NOK 50 million.
Impact of the new regulation
The impact of these regulations on the business sector will be interesting to observe, but it is evident that it will have a major impact on all existing business enterprises affected. Since there is no minimum requirement for number of directors in private entities, we will likely witness a decrease in size to one or two board members in many companies, as the rules only applies to board of directors with at least three members.
Many shareholders in private limited liability companies have entered into shareholders' agreements regulating the composition of the board of directors and providing appointment rights for shareholders. It may be required to amend shareholders' agreements to clarify how to ensure that the board of directors fulfills the requirements for gender balance. The impact of the new rules will be especially evident for large group corporations and PE structures with several holding companies and portfolio companies. Entities should start to map out if and when they will be subject to the new rules and which changes that must be made to their boards to satisfy the requirements.
Consequences of non-compliance
The consequences of non-compliance are severe: Entities that do not comply with the requirements will be compulsory liquidated by the courts after a period of time. The Norwegian Register of Business Enterprises will have a control function and reject registration if the board is incompliant with the gender requirements.
Thommessen can assist your company in navigating the new regulations. With our extensive experience and expertise in corporate law, we can provide the necessary guidance and advice to ensure your company's compliance with these new gender representation requirements.