Beazer Homes, Hercules Offshore, Umpqua Holdings and Jacobs Engineering also face say-on-pay suits following failed votes. Occidental Petroleum and KeyCorp settled similar litigation. In both the pending and settled suits, the compensation advisors are named as defendants along with the board and compensation committee.

Reacting to the lawsuits, Farient Advisors Executive Chair Robin Ferracone said, “I’m not sure that these results are all that positive.…We’ll continue to provide objective, independent advice. I don’t think the advice will change.”

“What is surprising to me is that some of my clients have told me that their executive compensation consultants have asked the company to indemnify them for their work—and they never will,” said Jack Lederer, principal at Curcio-Webb, where he directs the Executive Compensation Advisory Services Practice. In fact, Lederer believes that these sorts of suits will increase in coming years. “There are three points of influence: the shareholders, the compensation committee and management,” he said. “What [compensation consultants] need to do is make the tension between the three points livable and positive.”

While I had planned on a football theme with eleven players on either (take your pick) the U.S. gridiron or the rest-of-the-world’s pitch, the governance guru/gambler’s remark required research. After a Google and a few Wikis, I learned that initial rolls of the dice that add up to either seven or eleven are “natural” winners at the craps table. Eleven is called out at the table as “yo-leven” (or “yo”) due to the potential for confusion given the similar sound of seven.

As I pictured the bevy of boardroom requirements tumbling out of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), it hit me that a roll of the dice would more than suffice as the 2011 season’s symbol. While directors will not imagine that they are in the Nevada desert once the say-on-pay tsunami makes landfall, they may feel like riverboat gamblers—slightly queasy and desperately seeking terra firma. The deal-sealer was an obscure Wiki factoid: craps devolved from an old English dice game called “hazard.”

So without further ado, here is a list of seven potentially hazardous points that directors should prepare to roll when they step up to the boardroom craps table for the yo-leven proxy season.

Democrats’ Snake Eyes Roll May Roil Directors
The 2010 annual meeting season was quiet thanks to all of the noisemaking in the nation’s capital. In the wake of the Wall Street-driven market meltdown, all eyes locked onto K Street and Capitol Hill. Many activists actually down shifted their 2010 annual meeting efforts in favor of a march on Washington D.C.

This capital investment paid dividends as Dodd-Frank looked like it would tip the governance table in activists’ direction for 2011 and beyond. Reformers were on a hot steak last summer as Congressional stick men Senator Chris Dodd and Representative Barney Frank passed loaded dice over to the Securities and Exchange Commission (SEC). With the long-coveted cover of Congressional authorization, the Commission adopted its proxy access rules in August 2010 and began implementing Dodd-Frank’s say-on-pay mandates.

Before the winning chips were pushed across the table, however, the U.S. Chamber of Commerce and the Business Roundtable asked the U.S. Court of Appeals for the D.C. Circuit to invalidate the SEC’s access rule. In October 2010, the Commission shocked the good-governance crowd by staying the effectiveness of the rules pending resolution of the legal challenge.

Next, in early November 2010, Washington’s reign as the epicenter of the governance universe abruptly ended when Congressional Democrats rolled snake eyes in the mid-term elections. The subsequent musical chairmen game led to an ideological sea change in the U.S. House of Representatives as Alabama Republican Spencer Bachus replaced Massachusetts Democrat Barney Frank as chair of the House Financial Services Committee. Rep. Bachus promised to go title-by-title through his predecessor’s namesake Act to “correct, replace or repeal the job killing provisions that unnecessarily punish small business and community banks that did nothing to cause the financial crisis.”

The odds of Dodd-Frank’s repeal are low since Democrats still control both the U.S. Senate and the White House. Undaunted, newly installed Republican committee chairs have already begun to harass agency rule writers—via tough oversight—and to starve—via slow, low or zero appropriations—the SEC and the various new bureaucracies envisioned by Dodd-Frank.

Without the promise of further governance changes via Federal fiat and with proxy access offline, directors should prepare for bumper crops of shareholder proposals, letter-writing campaigns, “just vote ‘no’” efforts and old-school proxy fights this year. Notably, activists have turned their attention to the leftovers—especially majority threshold voting (MTV) in uncontested elections—from last year’s Congressional chow down at the governance buffet.

Boards Weigh Odds of Activists Rolling Hard Six
As a result of the SEC’s stay, the Commission’s rule (14a-11), which would have become effective on Nov. 15, 2010, sits in limbo. Even assuming the Federal courts uphold the rule, implementation will not come in time to impact the 2011 proxy campaign. The SEC stay also delays amendments to Rule 14a-8 that would have allowed investors to file bylaw proposals creating more permissive access procedures.

While 14a-11 nominees and 14a-8 bylaws will not appear on 2011 ballots, some activists have begun to build the infrastructure that will allow them to exploit access once it is up and running. The rule, if implemented, will require wannabe shareholder nominators to roll six the hard way—owning at least three percent of a public company’s voting stock for at least three years. That means only big players need apply. Some mega-money managers tell us that they have already received feelers from activists who seek to gauge their future interest in joining coalitions to clear the three-percent/three-year hurdle.

Two of the market’s highest rollers, the $220 billion California Public Employees Retirement System (CalPERS) and the $140 billion California State Teachers’ Retirement System (CalSTRS), are rounding up possible candidates for boards. The two fund giants partnered in 2010 to develop a database of potential shareholder-friendly director candidates with diverse talents. This “Diverse Director Database,” or 3D, opened last year and the funds are fielding resumes.

“Wall Street engineers must get ahead of what comes down the pike,” said Becky Quick, co-anchor of CNBC’s “Squawk Box,” who introduced Hu. Quick noted that SEC Chair Mary L. Schapiro tapped the University of Texas professor 13 months ago to head the first new division created by the Commission in 37 years because she had “identified someone that first started warning us about derivatives.”

Hu’s remarks focused on his “decoupling” concept as well as the importance of the Dodd-Frank Act, which he labeled the “most comprehensive change in generations… representing a new era for corporations and boards that introduces new challenges and opportunities. It is important to get the balance between corporate governance and financial innovation right.”

Less than two weeks after Hu addressed the NACD audience, his resignation was announced by SEC Chair Mary Schapiro. No replacement was immediately named and Hu told Bloomberg News the decision to depart was “completely my own. This seemed like a very natural point in terms of having accomplished the very basic goals” of setting up a new division, he said. Hu’s unit was created through the merger of separate SEC units that conducted economic analysis and identified emerging financial risks. He hired people who previously worked at hedge funds and on Wall Street, adding to an SEC staff primarily made up of securities lawyers. “I am deeply grateful to Henry for the great start that he has given the division, and for his valued judgment on a wide range of important substantive issues,” Schapiro said in the SEC’s statement. Hu told Bloomberg he looks forward “to going back to what I have loved for 20 years, which is research.”

Sugar Joins Apple Board
Apple Inc. has appointed Ronald D. Sugar, former chairman and CEO of Northrop Grumman Corp., as its board’s audit and finance committee chairman. The appointment expands the board to seven members, including Apple CEO Steve Jobs, Intuit Inc. Chairman Bill Campbell and former U.S. Vice President Al Gore.

Gender Differences Noted in Board Decision-Making
Greater board diversity may help improve the public’s trust in corporate boards after the financial crisis, perhaps in part because there are strong differences in opinion between how men and women directors view certain issues. A study conducted by Heidrick & Struggles, WomenCorporateDirectors and Dr. Boris Groysberg of Harvard Business School found that 65 percent of women and 35 percent of men believe increased boardroom diversity would be beneficial. However, only half of both groups believed that their board was adequately advancing diversity. Female directors were also more critical of their board’s performance and competitive compensation practices, but had greater faith that executive compensation and proxy access regulations would have positive effects.

Rise Seen in Third-Party Litigation Funding
Investors are looking to court battles as a new way to earn profits, by supporting medical malpractice claims, divorces and class action lawsuits and retaining a portion of the winnings, The New York Times reports. A review by the newspaper and the Center for Public Integrity found that while funds from banks, hedge funds or private investors make it possible for those with minimal financial resources to take their cases to court, investors can also become too involved in the court proceedings; interest paid to the investor could eventually total more than the winnings.

Director Comp Steady
Director compensation has remained relatively constant this year, according to a survey of board compensation practices of 600 mid-market public companies by the accounting firm BDO. The annual study found that directors had a median compensation increase of just two percent. Last year’s study predicted that compensation would normalize as the current economic situation and boards’ reactions to it shifted. The stability of director pay this year “can be attributed to the survival mode that a lot of companies are in, a lot of them are just holding the line,” said Randy Ramirez, Northeast practice leader for the Compensation and Benefits Practice at BDO. “They’re not trying to push the envelope.”

FedEx Giving 1.5 Percent of Profits
FedEx designates about 1.5 percent of its pretax profits for corporate giving, compared with the average 0.9 percent, a fact that CEO Frederick W. Smith said in a recent interview with The New York Times pays off for those they help as well as for shareholders. “It’s good business to be a good corporate citizen,” said Smith. “People absolutely make business decisions toward companies that have good corporate responsibility records.”

CalPERS to End ‘Focus List’
The California Public Employees’ Retirement System (CalPERS) has decided to change its method of pursuing companies that it feels are underperforming or have poor corporate governance practices. Previously, CalPERS released an annual “Focus List,” spotlighting companies that were unwilling to make improvements in corporate governance. Because a Wilshire Consulting study found that the firms CalPERS worked with privately to make changes outperformed the ones named on the publicly released Focus List, CalPERS has decided to dedicate more effort to private collaboration.

M&A on Track for Biggest Year Since 2007
The increase in mergers and acquisitions will continue in 2011, with global M&A deals expected to reach $3.04 trillion, according to a report from Thomson Reuters and Freeman Consulting Services, based on interviews with 150 executives. Although the numbers are unimpressive when compared to pre-recession figures, it would be the biggest year for M&A since 2007, when deals reached $4.28 trillion. Deals are expected to finish out this year at $2.23 trillion, an increase of 12.6 percent from the recent low achieved in 2009.

Moving On Up
The number of public company directors being promoted to CEO has significantly increased, a new study from Heidrick & Struggles finds. Between July 2009 and mid-October, 2010, 13 Fortune 1,000 companies named their own directors as permanent CEOs, and three were named interim CEOs. Four directors were named to the CEO position in the previous year.

To Thwart Poaching, Google Raises Salaries
Google bumped all 20,000 employees’ salaries up by 10 percent and promised a $1,000 holiday cash bonus, according to an internal email from CEO Eric Schmidt that was sent to Business Insider by an employee, who later was fired for the leak (and will not be receiving the salary increase or bonus). The move, which is expected to cost the internet giant around $1 billion a year, is described by analysts as an attempt to retain employees being wooed by Facebook and other competitors.

Director Quits Metha Energy Over Governance Issues
David P. Meachin resigned from the board of Metha Energy Solutions because of “disagreements with the company in relation to corporate governance matters,” according to the company’s 8-K filing to the SEC reporting his resignation, filed on November 9. Meachin’s resignation letter, dated October 11, specifies that he “lost confidence in Jesper Toft’s role as the CEO of the company based on his performance.”

CEOs More Confident
CEOs feel positive about the economic outlook for the next six months, according to a quarterly study on CEO confidence from the Young Presidents’ Organization. Only 12 percent of CEOs surveyed felt that economic conditions would worsen, while nearly half of executives were optimistic. CEOs also reported more frequently that their companies are planning on hiring; one in four had hiring plans this quarter, while only one in three did in the previous study. Sixty percent believed sales would increase over the next year.

Pressure to Donate
Sixty percent of business leaders surveyed feel pressure to contribute to political efforts, finds a poll conducted by Zogby International, commissioned by the Committee for Economic Development. Business leaders also reported concern about undisclosed donations to third-party political organizations, with 77 percent believing that companies should disclose all political spending. Half of the respondents familiar with the Supreme Court’s Citizens United decision in January to allow unlimited and undisclosed political spending disagreed with the ruling.

Fewer New Directors Are Also CEOs
Only 26 percent of new directors are active CEOs, compared with 53 percent 10 years ago, according to the latest edition of Spencer Stuart’s annual board study. The report finds that boards are more independent now, with a ratio of 3:1 outside to inside directors when the firm began its studies, to 5:1 today. Diversity has become more important to boards, with 44 percent seeking women and 47 percent reporting looking for minorities. In contrast, only 21 percent of new directors this year are female, and 12 percent are minorities.

McChrystal Joins JetBlue Board
JetBlue Airways has appointed retired General Stanley A. McChrystal to its board of directors. McChrystal is a 34-year U.S. Army veteran who most recently commanded the U.S. and NATO security mission in Afghanistan. McChrystal retired from the Army shortly after a Rolling Stone article earlier this year portrayed him in a light that “does not meet the standard that should be set by a commanding general,” said President Barack Obama at the time. JetBlue Corporate Secretary James Hnat cited McChrystal’s “depth of experience and the track record of leadership” as reasons for his appointment.

Total Realized Comp for CEOs Falls
Annual compensation rates for executives edged up 1.6 percent in 2009, while total realized compensation — which adjusts for changes in value realized on stock options and other vested equity income — slipped 0.3 percent, according to a recent report from The Corporate Library.

The results indicate a continued increase in base salaries and a modest increase in the number of bonuses that were handed out last year. Meanwhile, the category of all other compensation, in which companies typically disclose CEO perks, fell 18 percent from 2008, due in large part to fewer CEOs receiving tax reimbursements for certain perks.

Who’s Tops In CEO Pay
The Wall Street Journal released findings from consulting firm Hay Group on the top 10 most highly compensated CEOs in 2009:

• Liberty Media’s Gregory B. Maffei – $87,095,900
• Oracle’s Lawrence J. Ellison – $68,649,800
• Occidental Petroleum’s Ray R. Irani – $52,181,400
• Yahoo’s Carol Bartz – $44,613,900
• CBS’s Leslie Moonves – $38,932,700
• Viacom’s Philippe P. Dauman – $33,728,900
• Thermo Fisher Scientific’s Marc N. Casper – $33,048,200
• Boston Scientific’s J. Raymond Elliott – $32,102,500
• Polo Ralph Lauren’s Ralph Lauren – $27,024,300
• McKesson’s John H. Hammergren – $24,464,800

“The only explanation we can envisage for the continued major governance failings that have characterized the board’s stewardship is that the board, as currently composed, suffers from entrenchment and ossification, which renders each of its members incapable of functioning as vigorous and independent shareholder representatives,” the letter reads.

Occidental’s board is expected to scale back its executive compensation plans. Spencer Abraham, a former senator from Michigan who chairs Occidental’s executive compensation committee, told the Los Angeles Times, “We will make substantial changes to the structure of compensation to something that is much more in line with our peers.”

News Corp Drops Hurd, Names Lead Director

News Corp. said in its proxy statement that former Hewlett-Packard CEO Mark Hurd “has not been nominated for re-election to the board.” The media conglomerate ruled by Chairman and CEO Rupert Murdoch also named Sir Roderick I. Eddington—a director since 1999 and chairman of the audit committee—to a newly established lead director post. Murdoch has served as the global media company’s CEO since 1979 and as chairman since 1991. In considering its leadership structure, according to the proxy statement, “the board believes that the combined roles of chairman and CEO are appropriately balanced by the designation of a lead director with substantive responsibilities, the substantial majority of independent directors that comprise the board and the company’s strong corporate governance policies and procedures.”

Basel III Rules To Phase In Through 2018

Although global regulators have reached an agreement on Basel III, The New York Times reports that officials still need to reach agreements on limits for short-term bank risks and how to deal with banks and other firms deemed “too big to fail.” The Basel III Accord will triple the capital held by banks to cover risks, increasing it to 7 percent from 2 percent of assets. However, the rules will be phased in through 2018. Additional rules are on the horizon to deal with cross-border banks that could have adverse effects on the financial markets when they get into financial trouble.

Lead Directors Gain Clout

Lead directors are gaining clout on U.S. boards,” The Wall Street Journal’s Joann S. Lublin reports, “a development that gives the boards the potential to become more effective counterweights to powerful chief executives.” Lead directors today increasingly challenge top executives about risks, hold veto power over board agendas and often help settle disputes between companies and key institutional investors. “Lead directors’ increased stature is also evident in the number of times they’re tapped as temporary chief executives.” A King & Spalding analysis shows that 16 lead directors have assumed acting command since 2006.

Surge Seen In Fraud Tips

New awards for informants who help the Securities and Exchange Commission uncover fraud have resulted in a surge in tips. “The Dodd-Frank financial law passed in July provides for the larger bounties,” The Wall Street Journal reports, as “the program aims to get timely information from insiders close to a fraud so the SEC can bring a case quickly, limit the damage, and recover funds for victims.” Defense attorneys, though, caution that the program could spawn a flood of frivolous cases. The large bounties could also spur employees to report problems to the government rather than working through normal corporate channels and letting the company self-report any issues. William Jordan, a corporate defense attorney at Atlanta-based Alston & Bird, says, “It adds a level of inefficiency and hyper legalism to the way you’d want an ethical company to work.”

SEC: Moody’s Won’t be Charged

The SEC has decided not to charge Moody’s Investors Service for violating securities laws by failing to comply with its own procedures for rating complex derivative securities in 2007, The New York Times reports. The decision followed an SEC probe; the Commission used the opportunity to caution all of the national credit-rating agencies that it would use its new authority under Dodd-Frank to take action against similar conduct “even if it occurred outside the United States, as the Moody’s case did.”

Bank Bonuses to Come Earlier

With the specter of higher taxes looming in 2011 and banks still reeling from last year’s U.K. bonus tax, executives at some financial-services companies are considering whether to pay year-end bonuses­—traditionally doled out starting in January—sooner. Many firms are indeed looking to move part of their bonus payments from early 2011 to late 2010. Jones Day attorney Mike Shah told the WSJ: “It’s something companies ought to consider because it enhances employee morale and therefore shareholder value.” The early bonus might be a way for U.S. banks to soften the blow of likely smaller incentive payments as a result of softer revenue during the first eight months of the year.

Better Pay For Nonprofit CEOs

A compensation study by Charity Navigator that looked at the salaries of CEOs at 3,000 mid-to large-sized charities shows the median salary of top leaders was $147,273 in 2008, a 4.7 increase from the previous year, according to the Philanthropy Journal. A related story in the Houston Chronicle reported on the questionable increase in compensation for the top executive of the YMCA of Greater Houston, who is the highest paid CEO of any nonprofit human-service organization in the country. According to the Chronicle, “Compensation of charity executives has always been a hot-button issue for donors, who believe their dollars should mostly support programs and services. But federal and state officials are now expressing similar concern, especially as they try to provide services with fewer dollars.”

Director Compensation Barely Increases

Compensation for outside directors at the nation’s largest corporations remained relatively flat last year, as most companies continued a cautious approach to spending compensation dollars, according to a new analysis by Towers Watson. The analysis found that 2009 pay packages of directors at S&P 500 companies climbed just 1 percent over 2008 levels. Doug Friske, head of executive compensation consulting at Towers Watson, explained that companies have been hesitant to drastically alter pay for directors but added that the study “found that most of the handful of companies that reduced pay for their directors in 2008 have reinstated pay to levels set prior to the economic crisis.” Total compensation for outside directors at the companies studied increased to $200,698 last year, up slightly from a median value of $199,949 in 2008.

Authors Question

Shareholder Moxie on Proxy

Shareholder “say on pay” is one of the most notable portions of the landmark financial-reform legislation passed in July, because it aims to bring accountability to executive payrolls for all publicly traded U.S. corporations, reasoned Sarah Anderson and Sam Pizzigati in a recent Los Angeles Times op-ed. The co-authors of the new Institute for Policy Studies report, “Executive Excess 2010: CEO Pay and the Great Recession” assert that the legislation has codified almost the entire shareholder-driven agenda for pay reform by mandating independent corporate board compensation committees, clamping down on compensation consultants who have conflicts of interest and requiring corporations to disclose how their executive pay relates to actual financial performance. Still, the authors say that they suspect this legislative action will fail to end all of the outrageous incentives for reckless executive misbehavior, because it assumes that shareholders “once suitably empowered, will rise up and end executive pay excess.”

Whither Perqs

More than one-third of the Fortune 100 companies included in Equilar’s “2010 CEO Benefits & Perquisites Report” eliminated at least one perquisite program.  By comparing proxy information from 2005 to 2009, the Equilar report confirms what most of us already know: perqs are in a steady decline, prompted by SEC requirements for fuller disclosure.  In 2009, 34 percent of the Fortune 100 companies reported the complete elimination of certain programs.  Perqs that were discontinued most frequently? Tax reimbursements (so-called “gross ups”), insurance premiums and financial planning.