eBay Vote Shows a Return to Complacency

"[Shareholders] don't need to give up that much dilution, but they can shrug their shoulders," said one hedge fund analyst, who asked to remain anonymous. "Why lead a revolt, given the way management has performed? People believe in the status quo, and management probably knows they can take advantage of that."

That's why the vote at eBay may indicate that the latest round of corporate reform may be coming to an end. With the stock market up broadly, investor optimism has returned -- and with it a willingness to disregard warning signs, portfolio managers say.

Complacency Rules Again

"This is an uphill fight," said Harshberger, who recently served as president of Common Cause. Many investors are in denial about what happened, believing that the disasters at Enron and other companies were a function of the market downturn rather than failures of corporate governance, Harshbarger said. Despite all that's been uncovered about corporate excesses, reformers haven't been able to effect any fundamental changes in attitudes or behavior among investors or managers, he said.

On Monday, Prudential analyst Mark Rowen issued a report that reads like something left over from the dot-com boom. Citing enthusiasm about eBay's just-concluded users' conference and the ability of many sellers to make money on eBay, Rowen reiterated his buy rating on eBay and raised his price targets on the company's shares from $108 to $120. Prudential has no banking relationship with eBay.

Meanwhile, Youssef Squali's view is typical of many market analysts today. Squali, who covers eBay for First Albany, said he takes options dilution into account when assessing the company. But the dilution has been far outweighed by the company's financial performance, he said. Given that, shareholders shouldn't worry too much about eBay's stock options practices, he said.

"It's not something we worry about as long as management is doing a good job of implementing their business strategy and creating shareholder value, as long as they deliver results," Squali said.

That view belongs in fantasyland, said Gary Lutin, an investment banker and longtime corporate-governance critic.