What's 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. 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.


CAPS Rating (5 Max)

Index CGQ Ranking*

Industry CGQ Ranking*





Chevron (NYSE:CVX)




Disney (NYSE:DIS)




United States Steel (NYSE:X)




Valero Energy (NYSE:VLO)




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 relative to their shareholder policies.

Go to the head of the class
There were undoubtedly many factors that both caused and extended the Great Depression, but it is generally agreed the Smoot-Hawley tariffs on trade exacerbated an already-perilous situation. And while free-trade agreements are generally a boon to both partners, there are still some industries that see their particular case as exceptional and advocate for protectionism.

The steel industry is one that often cries foul, and over the years it has successfully persuaded politicians to impose tariffs and quotas on imports. The latest effort has United States Steel and Tenaris' (NYSE:TS) subsidiary Maverick Tube joining an effort to impose tariffs on Chinese-made steel pipe products. These companies argue that the foreign steel makers benefit from unfair trade practices such as dumping and government subsidies, and that those -- rather than market forces -- have allowed Chinese steelmakers to grab nearly half of this U.S. pipe segment.

If it were only so neat as all of that, considering that the U.S. doesn't exactly have clean hands either. Think of the massive infusions of cash that have been given to the banks, the multiple bailouts of AIG, and the loans that General Motors (NYSE:GM) and Chrysler have received.

Even if the steel producers are right, it does little good to impose restrictions. Restrictions usually lead to retaliation, such as in the 1930s, when governments around the globe played tit-for-tat on tariffs in response to America's impositions. And it's happening again, with the Obama administration having rewritten NAFTA and barring Mexican trucks from U.S. highways. Mexico didn't respond with a reciprocal ban on U.S. trucks, but instead it imposed a 20% tariff on fruits and Christmas trees, a move that may cause pear growers, for instance, to lose as much as $60 million annually in exports.

U.S. Steel remains a top American steel producer, with raw steel capabilities of more than 31 million net tons per year, and it's the largest North American producer of tubular goods used in the oil- and gas-drilling industries. When those industries revive and the economy turns, U.S. Steel and others should once again prosper without having to resort to facile arguments for trade restrictions.

Investors such as CAPS member dmccartney believe that with U.S. Steel trading below its book value, the stock represents an ironclad opportunity: "Selling way below book value, and this industry has been severely beaten down by the recession. Long term, how can you go wrong buying a solid company this cheap?"

Well, rhetorical question notwithstanding, CAPS member jigar34 has an answer and posted in a response to dmccartney:

When you account for goodwill and tangibles, the stock does not appear to trade below book value. …  I liked the stock as well and was excited about it, but after reading a bit more about its debt, Moody's downgrade on [its] credit rating, the aging and high cost production facilities, [competition] from cheaper global producers, and the pension (union) liabilities facing the US Steel industry, especially [U.S. Steel], I am a bit spooked.

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.

Disney is a Motley Fool Inside Value recommendation and a Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey owns shares of Disney but has no financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool's disclosure policy is as strong as tempered steel.