Just as capitalism thrives through the collective efforts of its individual participants, getting the economy back on track will require business leaders of all stripes to put their shoulders to the wheel. To be sure, the future will look a lot different than the recent past, as regulators and business leaders alike create mechanisms to avoid making the same mistakes. In a sense we are not simply rebuilding the economy; we are renovating it. With this innovation-friendly attitude in mind, these three new titles (and one classic) provide sound fundamental advice for executives and directors looking to recover from and renovate the shaken economic landscape.

On the Road to Recovery
In times of uncertainty and confusion, there is no shame in appealing to the wisdom of greater minds for guidance. Given the challenges presented by the unstable market, this principle is “by itself good reason to reflect on the careers of Warren Buffett, George Soros, and Paul Volcker,” says Charles R. Morris, author of The Sages: Warren Buffett, George Soros, Paul Volcker, and the Maelstrom of Markets. Morris’s book examines in depth the careers and fundamental market beliefs of these three powerful economic thinkers and points out what their principles can teach us about the current rough waters of the global marketplace. Morris examines each man’s approach to the free market, drawing out in detail their individual opinions on such topics as financial regulation, market movements, the current presidential administration, and sound governance. Buffett, for example, speaks of the delicate interpersonal balance that accompanies the compensation debate in typical Buffett fashion: “When the compensation committee—armed, as always, with a report from a highly paid consultant—reports on a mega grant of options to the CEO, it would be like belching at a dinner table for a director to suggest that the committee reconsider.”

Morris allows his subjects to speak for themselves, quoting at length a broad selection of speeches and texts by each. While his analysis of the men’s approaches is relatively thin—most of the book is presentation rather than critique—he does provide a substantial postscript that explains “how much has gone wrong and how fast it happened.” As Morris is a respected voice in the business community, his own musings are worth a look, but, ultimately, it’s his three wise men who deliver a much-needed helping of sage advice.

Leading by Example
Looking for an economic mind closer to the boardroom than to the stock ticker? Then you will find plenty to like in David Magee’s Jeff Immelt and the New GE Way: Innovation, Transformation, and Winning in the 21st Century, a comprehensive profile of the chief executive’s revolutionary tenure at General Electric. Immelt, who had a tough act to follow when he succeeded GE icon Jack Welch in 2001, quickly silenced doubters by leading a campaign of overwhelming innovation throughout the company, boosting revenues and shareholder gains, and making a name for himself that rivaled that of his predecessor.

Although GE’s stock has languished recently and some of the gleam of Immelt’s tenure has dulled, his three core principles of integrity, performance, and change remain as relevant as ever. In his conversations with Magee, Immelt stresses the importance of continual innovation, and the dangers of inertia, emphasizing that his company “teaches its people how to perform, problem-solve, and drive change, regardless of the circumstances.” Indeed, no matter the challenges posed by a difficult market climate, business leaders should look to forge an active course based on innovation and a refusal to succumb to adversity.

Magee’s recounting of Immelt’s successes at GE is comprehensive, including Immelt’s major decisions as well as his day-to-day management of the company’s 300,000-plus employees. Magee structures his book in 15 individual “lessons” that explain Immelt’s approach to leadership while describing the company’s history over the last eight years. The lessons gleaned from Immelt’s experience will be invaluable to managers looking to pull themselves out of the recessionary deep.

New Rules
Professional leadership consultant Ram Charan, whose résumé includes behind-the-curtain stints at GE, Bank of America, Dell, and a host of other Fortune 500 firms, knows well that it’s easier to dispense advice on sunny days than in the midst of an economic storm, but his latest offering seeks to accomplish the more difficult of the two. Leadership in the Era of Economic Uncertainty: Managing in a Downturn is a primer for executives looking to keep their businesses strong in the midst of tremendous economic challenges.

As is his custom, Charan emphasizes strong, confident leadership coming out of the recession, but he also advises executives to take an unprecedented command of their companies’ day-to-day operations, what Charan labels “management intensity,” or “hands on, head in.” For boards, Charan stresses the importance of risk management, healthy shareholder relations, and wise compensation policies. Like most of Charan’s books, Leadership is more specifically geared toward executives, directors, and other upper-level managers, but business leaders on all levels stand to benefit from the world-class consultant’s sound advice.

Simple Advice for Complicated Times
Just as the classics of literature resonate no less powerfully in the minds of each generation, the lessons of classic business management guides can be applied to the challenges faced by today’s executives. Case in point: Robert Townsend’s Up the Organization: How to Stop the Corporation from Stifling People and Strangling Profits, which, almost 40 years after its debut, is still one of the most admired resources for management that exists, and certainly one of the more accessible. Structured in a no-nonsense, easy-to-read format, the book takes to task classic assumptions about organization, labor, and day-to-day leadership challenges, offering a pragmatic, often wickedly funny outlook on successfully managing a company.

Townsend’s attitude may be mistaken for cavalier, but at heart his advice is sound and cogent. With topics ranging from “Conflict Within the Organization” to “P.R. Department, Abolition Of,” Up the Organization is as valuable to managers as it is enjoyable. And though it doesn’t offer anything specifically relevant to the crisis at hand—a section on “Mortgage-Backed Derivatives Packages” wouldn’t have meant much in 1970—it is a solid grounding point for managers looking to disentangle their organizations from the bureaucracies and over-complexities wrought during the first decade of the 21st century.

Usually, when people think of Texas they think of oil companies. But a scan of Texas’ Fortune 500 companies paints a far different picture. For every Exxon Mobil there is a Dell, an AT&T, a Sysco, and a Research in Motion, maker of Blackberry mobile devices. The reality is that Texas is full of diverse and thriving business communities.

For this and other reasons, Texas tops our first annual Boardroom Guide to the Best States for Business. The guide is an outgrowth of our annual Guide to State Litigation Climates. This year, the Boardroom Guide was expanded to include measures such as quality of life, tax climate, cost of labor, and other components.

We think the Guide captures the fundamental benefits of why a state should be on a board’s radar screen for relocation, expansion, or conversely, a warning to reduce the profile or abandon ship when the state becomes decidedly anti business. Admittedly, the rankings are biased towards what is meaningful to most businesses and their boards and by necessity does not reflect all the nuances that each state may offer. And no state is homogenous. While some states rank toward the back of the pack, there are likely wonderful communities within them where businesses can and do thrive.

For a deeper dive into the litigation picture, we also bring you a state-by-state analysis in the Boardroom Guide to Litigation Climates. Directorship is deeply indebted to author Steven B. Hantler and his colleagues at the Foundation for Fair Civil Justice, most notably Steve Nolan, for their work assimilating the Guide. This year, we will update the Guide online (www.directorship.com/litigation09) with relevant political and judicial developments, making it even more valuable to readers and those looking to strike oil—or silicon—in Texas, or beyond.

These companies are finding out what corporate giants such as Dell, Exxon Mobil, AT&T, and EDS have long known: that when it comes to business, Texas is number one.

What puts Texas first? It has a pro-business tax climate that ranksthird, a low cost of living, a relatively solid economy, and alitigation environment that ranks 10th on our list. Texas also ranksfirst in the number of Fortune 500 companies located there.

The Lone Star state tops our annual Boardroom Guide to the Best States for Business. The guide is an outgrowth of our annual Litigation Guide, which assesses the litigation climate in each of the 50 states (Page 28). We decided to produce a more comprehensive resource for boards by adding data on the economy, tax climate, cost of living, education, and other measures to arrive at the ranking.

What puts Texas first? It has a pro-business tax climate that ranks third, a low cost of living, a relatively solid economy, and a litigation environment that ranks 10th on our list. Texas also ranks first in the number of Fortune 500 companies located there. We used the Fortune rankings as one measure of attractiveness to large companies and an indication of strong infrastructure. Texas’ central location and time zone also make it an ideal hub, especially for companies with a national distribution or customer footprint. Recently, companies such as Toyota and Caterpillar have located portions of their business in Texas.
“Our commitment to low taxes, predictable regulations, and a fair tort system are setting an example for the nation and creating a magnetic force for the businesses and jobs that are vital to maintaining Texas’ competitive advantage in the global marketplace,” says Texas Governor Rick Perry.

“It’s not surprising that Texas does well in these types of rankings,” says Hartley Powell, national leader of the global location and expansion services practice at KPMG LLP. “They have been very successful over the years at broadening their base from energy into areas such as high tech and manufacturing.” Powell says Texas has a quality labor force and a good tax structure for business.

Rounding out the top five states overall are Virginia, Utah, South Dakota, and Nebraska, home to Warren Buffett’s Berkshire Hathaway. Virginia has recently become a favorite business destination. Last year, Computer Sciences Corp. left El Segundo, California, for Falls Church, Virginia. “Virginia is a very good state for business,” says Powell. “They have been aggressive and have done a good job attracting companies to the state.” In our ranking, Virginia is in the top 10 on quality of life, higher education, economy, and the state litigation ranking, making it a very balanced state across the board.

One up-and-coming state, according to some of the experts we talked to, is Tennessee. The Volunteer State ranks 9th on our list, with the lowest cost of living in the nation and a litigation climate that is third best. In 2005, Nissan moved its North American headquarters from California to a suburb of Nashville.

Tax Climate

One important component of any business relocation effort is the tax structure of states being considered. “In the last few years, tax climate has become more important as companies have become more cost conscious,” says Powell.

The rankings use a tax-climate measure put together by the Tax Foundation, a non-profit, nonpartisan research group that has been assessing tax conditions since 1937. Joseph Henchman, director of state projects at the Foundation, says the group’s rankings include more than 100 factors related to the tax structure and burden of each state. He says the factors measure how simple, neutral, transparent, and stable a state’s tax system is. At the top of the Tax Foundation’s list is Wyoming, which ranks 16th overall on our list. “Wyoming does well from a tax perspective, more for what it doesn’t have than for what it does,” says Henchman. The Equality State does not have a corporate income tax or a personal income tax. Two other states, Nevada and South Dakota, do not have a corporate income tax. “That tends to be a magnet for companies to want to do business there,” he notes.

Apart from low rates or the absence of certain taxes, Henchman says companies are looking for simplicity in complying with state tax laws. “Colorado has every tax, but it has low rates and they are broadbased,” says Henchman. Spending on compliance with state tax laws can be nearly as expensive as the taxes themselves, he says.

The Bottom Dwellers

States at the bottom of the list for tax climate include New Jersey, New York, and California. Companies doing business in these states are there for other reasons, such as access to capital or a skilled workforce. “Businesses have located there for other reasons, but increasingly they are leaving these states because of the tax and regulatory burden,” says Henchman. He says California is experiencing what he calls a “brain drain” to nearby states like Nevada and Arizona. States with complex state tax laws, according to the Tax Foundation, include Ohio, Michigan, California, and New York.

The lowest performing states in our ranking overall are West Virginia, Rhode Island, Kentucky, New Mexico, and Hawaii. To be sure, West Virginia does not have a lot going for it when it comes to attractiveness to business. The state ranked next to last on higher education—based on the percent of the population over age 25 who hold college degrees—the economy, and the state’s litigation climate. The lone bright spot for the Mountain State was cost of labor, where it ranked third. Another low-ranking state, Rhode Island, performed poorly on litigation and tax climate, but change may be coming. “Rhode Island has a high corporate income tax, but the legislature is working on trying to do something about it,” says Henchman.

With the rankings, a caveat must be noted: States can vary dramatically from one part or city to the next, and, while a state might not perform well in the state-by-state rankings, there may be areas that are very attractive to specific industries. Alabama is a good example. While it only ranks 37th on our list, it has been extremely successful at luring auto manufacturing to certain areas of the state. “Companies don’t really locate business in a state, they locate them in a community,” says Powell.

Methodology

The state rankings in the Boardroom Guide to the Best States for Business were compiled using eight major indices of attractiveness to business. The Litigation Climate ranking is our own measure, assembled with the help of the Foundation for Fair Civil Justice. Because of its importance to directors, this measure is weighted at twice the score of the other measures, which are equally weighted. The other components are: a measure of large-company attractiveness and infrastructure based on the presence of Fortune 500 companies; a measure of business tax climate conducted annually by the Tax Foundation; a cost-of-living ranking from CNBC Best States for Business 2008; a cost-of-labor ranking from the Bureau of Labor Statistics; an indicator of state economic performance from the Bureau of Economic Analysis; an indicator of higher-education prevalence by the Census Bureau; and measure of quality of life from Forbes. States were ranked from 1 to 50 on each measure and then scored based on the rankings.

The Banks
The country is in the grips of the largest financial crisis since the Great Depression, and the Federal Reserve and Treasury are throwing more than one trillion dollars at the banks through loans and equity purchases. Yet, they have imposed few conditions on the management of the banks.

A recession of unusual proportions is unfolding. Owing to the creditcrisis and housing collapse and excessive borrowing to finance a hugetrade deficit, built on too much imported oil and subsidized Chineseimports, the economy is entering a recession that may not be selfcorrecting, unlike other post World War II corrections.

Lending rates remain high and funds scarce for mortgages and worthwhile business loans. Meanwhile, Paulson is scurrying around considering ad-hoc investments in the likes of General Motors to finance an ill-conceived merger with Chrysler. The unfolding mess at AIG should indicate that giving broken institutions cash without compelling meaningful changes in management strategy and compensation incentives for executives does not generate the results.

J.P. Morgan’s announcement that it will rework about $70 billion in mortgages by writing down balances owed and restructuring payments may be the exception that proves the rule. Obama needs a Treasury Secretary that will compel the nation’s largest banks, which already have received billions in equity and loans, to do the same, and to rebuild the securitization market that pipelines funds from insurance companies and pension funds to regional banks, mortgage brokers and finance companies that are too cash starved to help worthy homebuyers and businesses.

Stimulus Package

A recession of unusual proportions is unfolding. Owing to the credit crisis and housing collapse and excessive borrowing to finance a huge trade deficit, built on too much imported oil and subsidized Chinese imports, the economy is entering a recession that may not be self correcting, unlike other post World War II corrections.

Near-term, compelling private efforts to rework mortgages in the J.P. Morgan mode, as a condition for federal largess to the banks, is essential; however, a second stimulus package in multiple installments to limit the depth of the recession is necessary too.

The lesson of the last stimulus package is clear. Tax rebates gave consumer spending a two month boost but not much else. Too much was spent on imports at the mall, and the money did not do much to stem job losses, even in retailing.

Rather, a stimulus package that focused on roads, schools and other public buildings would do much more to generate domestic employment, directly in construction and through purchases of materials and fixtures to refit buildings.

Any stimulus will require additional federal borrowing. A stimulus package spent on roads and other needed public infrastructure will leave a legacy in capital improvements that assist growth now and in the future.

Fixing Structural Issues

Longer term, the huge trade deficit, caused by too much imported oil and intervention by Asian governments in currency markets to boost their exports and ship unemployment here, had a lot to do with flooding U.S. capital markets with cheap funds and creating the first credit bubble. President-elect Obama waxed a lot about free trade agreements in his campaign but failed to adequately explain how he would fix either the oil or Asian-trade messes.

Investments in alternative energy sources, as Obama has proposed, can’t fix the oil import problem alone. Both drilling off shore and windmills, as well as much tougher mileage standards, are needed to make America less dependent on unfriendly Middle East states.

If China and others won’t stop subsidizing their exports by buying U.S. dollars to keep their currencies and exports artificially cheap, then offsetting taxes on purchases of yuan and other currencies are in order to encourage trade based on comparative advantage.

Obama has not said nearly enough about conventional energy development or the China trade problem. Come January, he needs to implement policies on these issues or fixing the banks will only lead to another credit bubble and crisis, the stimulus package will prove a palliative, and neither will usher in lasting prosperity.

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.

As of October 17, 2008, 68 percent of Fortune 500 companies had outstanding employee stock options with a weighted average exercise price higher than their closing stock price that day. The reality? A large percentage of employee stock options are likely underwater.

In 2007, only 32 percent of Fortune 500 companies had outstanding employee stock options with a weighted average exercise price higher than their closing stock price that day, according to research by Equilar, an executive compensation research firm and data provider.

A staggering 90 percent of Fortune 500 CEOs held underwater stock options as of October 17, 2008. Up a substantial amount since 2007, where 61 percent of Fortune 500 CEOs held underwater stock options.

Although option exchange programs remain relatively low in number, many more companies are beginning to seriously explore the possibility of dealing with underwater options through the use of an option exchange.

During the fourth quarter in 2008, Equilar found that there are more completed, active, and proposed option exchange programs than in any other previous quarter in 2008.

Equilar believes that there will be a significant increase in the number of option exchange programs if current market conditions persist.

Thirty-five companies have completed or proposed option exchanges in 2008, residing primarily in the home building, services, and technology sectors. Companies with revenues over $1 billion that have exchanged options in 2008 include Toll Brothers, MGM Mirage, Isle of Capri Casinos Inc., UTStarcom Inc., VMware Inc., R.H. Donnelley, Builders FirstSource Inc., and MDC Holdings Inc. In addition, Beazer Homes USA Inc. and AMD have disclosed a proposal to exchange options.

“It’s pretty astounding,” Tom Kolder, president of Crist Kolder, told FinancialWeek. “That tells you that there’s a real churn going on there.”

The average tenure for CFOs at most big companies is less than five years. With the credit crunch, housing downturn, and slowdown in consumer spending, it has been more difficult to maintain a company’s earnings and share prices.

CFO availability is also on the decline. A lot of would-be CFOs are being lured into private-equity jobs by higher pay and less regulatory compliance and exposure than public company positions.

Another factor is that when a new CEO is appointed, they often bring in a new CFO. When Robert Steel was named as Wachovia’s new CEO, CFO Thomas Wurtz said he would resign once a successor is named.

More CFO candidates are seeking the role of CEO. “What clients are looking for goes beyond financial expertise,” Kolder told FW. “It’s someone with much broader business acumen, who can act as alter ego to the CEO. The war for that talent is only getting more intense.”

Fortune 500 companies held onto worthless stocks with hopes of investors sending prices back up again. According to FinancialWeek, these companies will have to think up a different strategy as stock options are underwater at nearly 40 percent of Fortune 500 companies. This number has increased from the one-third that had worthless stock options during the first quarter.

Compensation consultants believe that companies are looking to re-price or exchange their worthless stocks.

“Over the last several weeks, we’ve fielded a number of calls from companies about their underwater options,” said Brett Harsen, vice president at Radford, a compensation research and consulting firm, to FW. “They want to know what their choices are, and what it will take to find a solution.”

The majority of firms in trouble are financial firms, followed by automakers, retailers, and tech companies. Had Bear Stearns and Countrywide Financial still been operating independently, the number of companies in trouble would have been increased.

Companies will either trade underwater options for options with new exercise prices or swap them for restricted stock. Companies are expected to swap underwater options for restricted stock over the next year.

The review of Compensation Discussion and Analysis (CD&A) reports of Fortune 500 companies by Equilar found an increase in the prevalence of companies that considered accumulated wealth when determining executive pay levels from 8.4 percent in 2006 to 14.5 percent in 2007.

For key board leadership positions, Equilar found that median total board-level compensation for non-executive chairs at Fortune 500 companies increased from $258,500 in 2006 to $264,000 in 2007.

Other findings:

• For lead directors, median total compensation increased from $174,843 to $189,413 over the same period. 
• The prevalence of Fortune 500 companies with independent board leadership positions grew from 78.4 percent to 80.9 percent.
• In 2007, 71.7 percent of non-executive chairs and 45.8 percent of lead directors at Fortune 500 companies received a pay premium over regular board members not holding a leadership role.

Companies that consider accumulated wealth in the study included Halliburton, ManPower, Big Lots, Rockwell Automation, Dillards, and Aetna.

Exxon Mobil was second and oil group Chevron third on the list. The other top ten companies in order were Conoco Phillips, General Electric, Ford Motor, Citi Group, Bank of America, and AT&T.

While Wal-Mart is the biggest, Exxon Mobil stood as the most profitable company for the fifth year on the Fortune list, good news for its shareholders. GE came in as the second most profitable corporation on the list.

The biggest mover on the list was the new ranking of AT&T. The company was ranked 27 on the list last year, but jumped to the 10th spot this year.Size isn’t always a plus however. As Directorship found, sometimes size can make companies vulnerable to concerted attacks by activists, regulators, and the media. (See “The Perils of Being Number One.”)

At least four Fortune 500 companies have taken steps to align a portion of theirexecutives’ compensation with broader corporate initiatives to reduce pollutionand find ways to run more energy-efficient operations. The shifts may mark thebeginning of a trend to link executive pay to environmental goals.

“I supposeit’s the concept of “never measured, never managed’ at work here,” BethYoung, senior research associate at The Corporate Library told FW. “Incentivesshape behavior, so if this is an important strategic issue for a company, itshould be benchmarked in executive pay.”

Among thecompanies that currently include environmental metrics in their executivecompensation packages are American Electric Power, Xcel Energy, AlleghenyTechnologies and NRG Energy. Each ties a portion of its executives’ annualincentive plans to a factor such as “environmental improvements,” a term usedby Pittsburgh-based specialty metals company Allegheny in its most recent proxyfiling, for example.

The most combative proxy season to date may lie ahead in the coming months. Now that the Securities and Exchange Commission (SEC) has decided to restrict shareholder access to proxies for at least another year, it’s more than likely that investors at some companies will attempt an end run by proposing a record number of proxy-ballot initiatives.

If the 2007 proxy season saw a number of shareholder proposals that reflected discomfort with excessive executive compensation, this year is likely to hold more of the same. Three issues—“say on pay,” pay-for-performance, and majority voting for directors— are expected to garner a record number of proposals this proxy season.

Leadership issues on boards of directors will also grab a good portion of the spotlight this year. According to Risk- Metrics, at least 20 companies now face resolutions to split the roles of chairman and CEO, or to install an independent chairman. Moreover, another proposal gaining traction calls on up to 12 companies, including Merrill Lynch, Verizon, and Bank of America, to disclose their policies on successionplanning. Given the succession fallout at both Merrill Lynch and Citigroup, expect interest in this issue to reach a new peak this year.

“Compensation, I think, is going to attract the most attention this year. We’re going to see a record number of shareholder resolutions on the topic.” –Patrick S. McGurn, RiskMetrics

Majority Voting

While proxy access continues to be a hot-button issue, some companies are choosing to look at an alternative method to director nomination: majority voting.

A report published in November 2007 by law firm Neal, Gerber & Eisenberg LLP, titled The Study of Majority Voting in Director Elections, found that 66 percent of the companies listed in the S&P 500 and more than 57 percent of companies in the Fortune 500 have adopted majority voting. Comparably, in 2006, when the study was first published, only 16 percent of companies in the S&P 500 were known to use the procedure.

“I think we’re going to continue to see fights on the [proxy access] issue for the remainder of the year,” says Patrick S. McGurn, executive vice president and special counsel at the Institutional Shareholder Services unit of Risk- Metrics. “The big wild card is whether this becomes an issue during the 2008 political campaign season, and whether one or more of the parties will pick up on this concept and push it, and really make it potentially a litmus test for future appointees to the SEC.” “I think that the frustration over the lack of progress of the SEC’s access proposals led a lot of activists to look at majority voting as the next-best alternative,” says Robert McCormick, chief policy officer for proxy advisory firm Glass Lewis. “It’s not the holy grail of actually being able to nominate someone without an actual proxy contest, but at least it makes it possible to unseat a director who may or may not be performing as you would like.”

A Shift in Activism

How the SEC decision to restrict proxy access plays out over the proxy season is still unclear, but panelists agree the number of proposals will be high. “We’re in a new era, and, in some respects, I’d say we’re in the second year of a kind of dimensional shift in activism,” says Stephen Davis, editor of Global Proxy Watch (owned by NewsMarkets, publisher of Directorship). “The reason I say that is because this year, 60 percent of the S&P 500 will be offering majority rule for director elections. Last year was the first we’ve really seen majority rule coming into effect. But this year, it’s now majority and I think we’d all say there are going to be more companies adopting majority rule.”

Two-thirds of the institutional investor respondents in an annual survey by RiskMetrics indicated that they favor universal access, while another 15 percent said they’d like it on a situational basis, where the facts and circumstances at an individual company merits it. “That’s more than 80 percent of the institutions overall saying they favor access in one form or another, and those are pretty high numbers to overcome,” says McGurn. Most of the panel agreed that shareholders would sparingly use the ability to vote out incumbent directors with a majority vote. “In most instances, directors are passing with overwhelming support— 95 percent plus support,” says McGurn.

The Battle over Pay

Continued heat over how much top executives of companies are paid is not expected to cool in the upcoming year. Recent filings with the SEC show what several top executives have commanded: Goldman Sachs Chairman and CEO Lloyd Blankfein will take home nearly $68 million, while Tyson Foods CEO Richard Bond received nearly $24.6 million in 2007. Capital One Chairman and CEO Richard Fairbank, is slated to receive stock options worth about $17 million in 2008, in place of salary, annual cash incentives, or long-term incentives.

“Compensation, I think, is going to attract the most attention, let’s put it, this year,” McGurn says. “We’re going to see a record number of shareholder resolutions on the topic, and probably a fairly significant number of targeted withhold or ‘no vote’ campaigns against members of compensation committees or boards over the issue.”

McGurn also expects the number of resolutions seeking to link pay to performance will rise at an unprecedented level. Another distinction is that those resolutions will be targeted based on 2007 proxy-statement disclosures. “If you were on one of those boards that did not put the performance hurdles into the proxy, or did not give adequate discussion about the linkage between pay for performance, I think chances are you might find yourself the subject of one of those shareholder resolutions this year.”

Other panelists agree that compensation committee chairs could find themselves facing trouble if investors are unhappy with their pay practices. “Some institutions say, ‘We don’t really need say on pay. We already have a vote. We can vote against the compensation committee members,” says McCormick.

James P. Melican, chairman of Proxy Governance, a proxy advisory and voting company, isn’t so sure: “If the corporate community was generally convinced that the advisory vote on say on pay would ameliorate the problem of how you withhold votes against compensation committee members, you’d be seeing a lot more people moving towards it,” he says.

Other topics likely to get attention on ballots this year, say panelists, are proposals specific to the subprime crisis, healthcare, and product safety. “Those are all issues torn from the headlines and there are new proposals on all of those topics coming up,” says McGurn. Environmental risk and disclosure is also sure to become fodder for shareholder resolutions. “Climate change resolutions are going to be front and center,” says McCormick. “With shareholder resolution support growing substantially, boards would be smart to prepare themselves for that kind of pressure.”

In any event, boards are going to have to look at shareholder activism much more seriously in 2008. Says Davis: “It’s no longer just something you can choose to look at or pay attention to. It’s now something you have to pay attention to, because your jobs, in effect, as directors, could be on the line.”