The flipside to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. Conversely, there are top-flight companies that also treat their shareholders with respect.

Institutional Shareholder Services -- the big name in corporate proxies -- measures how well a company performs in as many as 63 categories, covering four broad areas. Moreover, each company is scored relative to its market index and its industry group. The ISS assigns the stocks a rating that it calls its Corporate Governance Quotient, or CGQ.

Some evidence supports the notion that companies with weaker governance have higher risk, decreased profitability, and lower valuations. We'll be looking at stocks that Motley Fool CAPS investors have marked to outperform the market and that also sport above-average CGQ scores, either in their index group or among industry peers.

Company

CAPS Rating

(out of 5)

Index CGQ Ranking*

Industry CGQ Ranking*

3M (NYSE:MMM)

*****

65.5%

93.9%

Alpha Natural Resources (NYSE:ANR)

****

98.8%

96.3%

American Eagle Outfitters (NYSE:AEO)

****

61.7%

80.4%

NorthStar Realty Finance (NYSE:NRF)

***

92.5%

83.3%

Schering-Plough (NYSE:SGP)

****

63.4%

97.8%

Sources: Yahoo! Finance, Motley Fool CAPS, as of 1/23/08. *Relative placement when compared to companies in index or industry. Higher is better.

Although finding good companies and holding them for the long term is one of the greatest secrets to investing, there are many factors that an investor should consider, and how well a company treats shareholders shouldn't be least among them. View these rankings as a way to gauge how these businesses stack up against one another relative to their shareholder policies.

Go to the head of the class
When looking at the pharmaceutical industry, top-rated CAPS All-Star BSHumphreyII noted that Schering-Plough -- despite some earnings issues -- had a pipeline that appeared to be in good shape:

Pharmaceuticals in general are going to be an outperforming sector for at least a year or so. Schering-Plough has had some trouble with earnings, but they have a decent amount of cash and a good-looking pipeline. ... Big thing to watch with all pharmaceuticals, though - don't just sit back and think the Obama Administration's focus on healthcare will be uniformly good for the drug business. Things like drug re-importation and Medicare price negotiation will probably be back on the table, and those sorts of policies will mean lean times for the pharmaceutical industry.

That's not necessarily the case for other industry players and helps explain why Pfizer (NYSE:PFE) has said that it is buying Wyeth (NYSE:WYE) for $68 billion. Instant pipeline support!

Try this on for size
It's been a long road down for mid-price teen retailer American Eagle Outfitters, which has succumbed to the collapse of the retail market like just about every other teen clothier. Shares that traded north of $22 a share a year ago now are on the discount rack at less than $10 a share. CAPS member aquabat63 thinks the retailer's got the threads to dress up a portfolio because its styles are generally well-received by kids and parents alike:

No long term debt. Kids and parents both love this store as it combines fashion and trendiness with reasonable prices. Prices were hammered after bad Nov. and Dec. sales, but that was to be expected. I like it.

A Foolish quotient
Many factors go into whether a stock is a buy or a sell, but do corporate governance policies enter into your equation? It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page.

Pfizer is a Motley Fool Income Investor recommendation. Pfizer and 3M are Inside Value picks. The Fool owns shares of Pfizer. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.