In the wake of the scandals that ruined investors in Enron and WorldCom and the options backdating fiasco, "corporate governance" became the watch-phrase of the new millennium and a whole cottage industry of rating management was born.

Some evidence supports the notion that those companies with stronger governance have lower risk, increased profitability, and higher valuations. Which means companies with poor corporate governance could be targeted by shareholder activists, hedge funds, or short-sellers. In short, they could be ripe for a fall.

Below, we look at stocks that are marked to underperform the market by investors on Motley Fool CAPS, but sport above average Corporate Governance Quotients (CGQs). Developed by proxy service Institutional Shareholder Services, a company's CGQ measures how well it performs in up to 63 categories covering four broad areas. Moreover, each company is scored relative to its market index and to its industry group.

Here are five that I'm highlighting today:

Company

CAPS Rating
(5 max)

Index CGQ

Industry CGQ

Ariad Pharmaceuticals (NASDAQ:ARIA)

**

73.5%

79.6%

Blockbuster (NYSE:BBI)

*

62.8%

56.9%

Chico's FAS (NYSE:CHS)

***

86.8%

89.5%

NVE (NASDAQ:NVEC)

*

89.0%

83.0%

YRC Worldwide (NASDAQ:YRCW)

***

72.1%

86.7%

 Source: Yahoo! Finance, Motley Fool CAPS. CGQ = higher is better. 

Although there are many factors that an investor should consider before buying a stock, how well it 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.

Searching for answers
Trucking leader YRC Worldwide has a very small window of opportunity to form a convoy of actions that will amend its credit facilities and renew its asset-backed securitization. Lenders have given the trucker until mid-February to get its house in order and improve its chances for avoiding bankruptcy, but with a series of spiky covenants stretched across its path, the road ahead is a tough one.

CAPS member geodawg2000 admits that YRC is in survival mode, but many in the industry are in the same predicament. Trailer maker Wabash National, for example, has idled plants, suspended its dividend, cut salaries, and reduced by 25% the number of salaried employees on the payroll:

[YRC Worldwide has] been in despiration mode way before everyone else started noticing market problems, the purchase of Roadway is a perfect example. Leaders are not perfect as in the purchase of USF, however the integration of Yellow and Roadway to become YRC has been welcomed by customers (not all). The back-end redundant office work is being reduced.

Is it time?
Just because Blockbuster has been unable to effectively counter Netflix's (NASDAQ:NFLX) presence for a while, that doesn't mean it is willing to throw in the towel. Its agreement to rebrand Sonic Solutions' (NASDAQ:SNIC) CinemaNow service shows it's willing to meet challenges head on. Whether it's a case of too little, too late remains to be seen.

In November, CAPS member stan8331 said it was too late and only a matter of time before Blockbuster's next battle would be with the bankruptcy courts:

If they're incapable of competing with Netflix, I see no future for Blockbuster. Their brick and mortar dvd rental business was profitable when there weren't cheap, easy alternatives. Online streaming is the wave of the future for instant access, otherwise Netflix gets dvd's to you at a very fast rate via U.S. mail. Basing your whole business model on convincing people to spend gas driving to your store in order to pay $4 tax to rent a single DVD (and then spend more gas to drop it off) is a recipe for bankruptcy.

A Foolish quotient
There are many factors that go into whether a stock is a buy or sell, and 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. Head over to CAPS today and share your thoughts with other investor-analysts on whether you think these stocks make the grade.

Netflix is a Motley Fool Stock Advisor selection. Try the investing service 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.