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 which 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*

Autodesk (NASDAQ:ADSK)




Brocade Communications (NASDAQ:BRCD)




Cisco Systems (NASDAQ:CSCO)




El Paso (NYSE:EP)




Procter & Gamble (NYSE:PG)




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. 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
With Dell (NASDAQ:DELL) agreeing to sell networking and storage equipment made by Brocade Communications, the computer maker is showing how earnest it is about becoming the next Cisco, particularly in light of Dell's $3.9 billion buyout of Perot Systems.

Maybe it just can't decide whether it wants to be Cisco or IBM (NYSE:IBM), but it appears that Brocade Communications is moving in another direction altogether. Management says it's going to stick to its knitting and do what it does best: Be a networking company and forge partnerships that last for years. The Foundry acquisition is finally gelling, and Brocade forecasts revenue that will exceed analysts' expectations. 

CAPS member EdVogel1 thinks that resurgent attitude will boost Brocade's buyout potential, while Salukilover simply sees greater gains arising from expanded partnerships: "New contract to supply dell will boost sales for at least the next 2 years. With the increased profitability of Dell this should be a great partnership."

Natural gas heating up?
The question confronting El Paso is whether Old Man Winter will be treating shareholders to some frosty goodness this year. Ample stores of natural gas have caused prices to plummet to seven-year lows, but the prospects for a cold winter has started them moving upward again.

El Paso has one of the largest interstate natural gas pipeline systems in the country, but several CAPS members agree that the natural gas producer's debt is too high. Their opinions differ on whether El Paso can still outperform: darksabre thinks El Paso "makes a good [short term] pick," while ChannelDunlap says it's possible "but it won't be pretty" if they do.

There seems little risk in El Paso's hedging activity, with price protection on 70% of its natural gas production in the back half of the year. While some may be concerned that it could lose out on any increase that may occur, it has a floor price of more than $9 per million BTU, and an average ceiling of $14 per million BTU.

Agree? Feel free to share your point of view in the comments box below.

A Foolish quotient
Many factors go into whether a stock is a buy or a sell. 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.

Dell is a Motley Fool Inside Value recommendation. Procter & Gamble is a Motley Fool Income Investor pick. The Fool owns shares of Autodesk and Procter & Gamble. Try any of our Foolish newsletter services today, free for 30 days.

Fool contributor Rich Duprey owns shares of Autodesk and Procter & Gamble 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 capital idea.