The flip side to shareholder-friendly companies expected to underperform the market? Highfliers that pay little heed to 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 (out of 5)

Index CGQ Ranking*

Industry CGQ Ranking*

Bristol-Myers Squibb (NYSE:BMY)




SandRidge Energy (NYSE:SD)




Take-Two Interactive (NASDAQ:TTWO)




Tesoro (NYSE:TSO)




Western Refining (NYSE:WNR)




Sources: 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
It was only a week or so ago that we were identifying Medarex (NASDAQ:MEDX) as a possibly great biotech with a pipeline of potential blockbuster drugs. Apparently Bristol-Myers Squibb thought so, too, because it decided to buy the company in a $2.4 billion deal -- a 90% premium to its closing price. Yowser! Bristol-Myers Squibb no doubt liked Medarex's cancer-fighting wonder drug ipilimumab, which they would be marketing together anyway, but the acquisition keeps the bigger company's focus on its core competencies. It's losing patent protection soon on blood thinner Plavix, generic competition looms, and with cancer drugs commanding high premiums, having at least one in late-stage development gives Bristol a leg up.

Although CAPS member dalibor10 believed the company would look in-house to find a drug to replace Plavix, finding them wherever you can works, too. dalibor10 writes:

Looks like a strong company financially, and although they'll be losing patents on some big money-makers like Plavix, they seem to have a lot in the pipeline. I'm betting they'll find a winner. Definitely could be wrong, but that's my guess.

No middle ground
Just like last year, oil refiners are getting caught in the middle. Oil prices are rising, up 10% alone in the past week and a half, but demand at the gas pump remains weak. The margins for refiners like Tesoro, Western Refining, and Valero (NYSE:VLO) will come under increasing pressure because of a narrowing "crack spread" -- the difference in price between crude oil and the petroleum products like gasoline extracted from it.

CAPS member azman90 thinks Tesoro will be able to weather the rest of this year's weakness, and even next year's if need be:

Tesoro has an extremely small P/E due to [worries] about the oil market. However, even if Tesoro has a rough 2009 and even a 2010 year, at this "bargain bin" price of under $11 / share, long term growth potential is huge. I'm guessing 200% growth or more in five years.

DNAJUICE is thinking along those lines regarding Western Refining, arguing that the market has overreacted to temporary conditions:

This stock is oversold on news of demand destruction and surplus in the oil industry. Who are we kidding here there are nearly a billion gas powered vehicles on the road and no legitimate alternate in the near future. This stock will recover.

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.

Take-Two Interactive Software is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletter services 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. The Motley Fool's disclosure policy is a capital idea.