The flip side 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. It 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. So 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
(5 stars max.)

Index CGQ Ranking*

Industry CGQ Ranking*

AK Steel (NYSE:AKS)

****

72.8%

93.2%

E*Trade Financial (NASDAQ:ETFC)

****

61.8%

90.7%

Kraft Foods (NYSE:KFT)

*****

54.6%

87.3%

Level 3 Communications (NASDAQ:LVLT)

****

96.6%

94.5%

SanDisk (NASDAQ:SNDK)

****

73.4%

98.0%

Source: Yahoo! Finance, Motley Fool CAPS.
*Relative placement when compared with 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 success in investing, there are many factors 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 in terms of shareholder policies.

Go to the head of the class
Supermarket chain Kroger (NYSE:KR) has not upped the pressure on name brands to cut prices in this recession, but it was able to post an 8% increase in profits this past quarter as private-label goods assumed a larger presence than ever before on its shelves. Kroger saw same store-sales jump 3.8% as its exclusive Kroger brands generated about 27% of revenue, reaching record highs of 35% of grocery unit sales.

That's taking a toll on food manufacturers, many of whom bet wrong on costs last year and locked themselves into high-priced contracts that haven't yet reflected the dive many commodities took last year. Kraft, for example, lost market share in the frozen pizza market last year as well as in mac-and-cheese and cold cuts because budget-conscious shoppers are looking for cheaper alternatives.

And Kraft isn't alone. General Mills (NYSE:GIS) remains defiant in holding onto the price increases it passed along to consumers when costs were soaring, believing that shoppers will pay more for brand names -- a move it says will help supermarkets boost profits, too. Yet Kroger seems to be taking the opposite tack of promoting the everyday values it offers as a means to boost volume. That has allowed it to gain market share at the expense of rivals like SUPERVALU and Safeway.

With a number of previously stalwart companies being forced to cut their dividends, Kraft's tasty yield of 5.3% has some investors worried that it may be forced to follow suit. Assuming the dividend remains intact, however, CAPS All-Star sehawk99 sees the food giant exceeding the performance of the market:

I'm concerned about a dividend cut. If that happens, then all bets are off. If not though, the dividend will help support the price and [Kraft] should eventually exceed the S&P. Especially if the S&P keeps banks/financials in the index.

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? They should. 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. It's free.

Kraft Foods is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey owns shares of Kroger, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy is a beauty-school dropout.