Corporate Integrity Made You 26 Percentage Points Richer

Ho hum ... here I am again, writing about corporate responsibility, discussing how nice it is when companies behave as we'd want them to. Perhaps you're starting to yawn, thinking to yourself, "Sure, but come on -- I'm not going to sacrifice my portfolio's performance just to feel good about its holdings." Fair enough, but consider this: According to the latest research by the folks at Audit Integrity, companies earning high marks for integrity seem to perform better than others -- a lot better.

Get this: In 2008, the 100 companies earning top marks from Audit Integrity lost an average of 16%. That may not sound so hot, until you remember that the broad market lost more than 42% on an equal-weighted basis.

So what gets a company onto the list? Well, Audit Integrity points to "clear financial reporting and transparent corporate governance," as well as "conservative management." Specifically, the firm examines risk factors like executive compensation, insider selling, share repurchases, and financial condition, among others.

The following companies are some that made the Top 100 list for both 2009 and 2008. I'm including their star rating (out of five) from our Motley Fool CAPS community.

I was interested to note that three of the seven companies above have been recommended by our various newsletter services. Our analysts have clearly also been impressed with them.

It's also interesting that most of them are not huge companies -- that serves as a good reminder that though we're most familiar with big blue-chip names, it's often the smaller companies that perform best.

What to do
So now what? Well, you might want to scan through the entire list of Top-100 companies, looking for prospects for your portfolio. Alternatively, you might instead just apply some of their criteria to your own research. For example, if you see a company amending lots of their filings, let that be a red flag. The same goes if it has been the subject of any recent class action suits or SEC investigations.

Learn more about another gauge of good corporate governance.