Between shareholder-friendly stocks expected to underperform the market, and highfliers that pay little heed to their owners' interests, you'll find 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*

Berkshire Hathaway (NYSE:BRK-A)




General Electric (NYSE:GE)












Spectrum Pharmaceuticals (NASDAQ:SPPI)




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. Consider these rankings one way to gauge how these businesses stack up against one another relative to their shareholder policies.

Go to the head of the class
Warren Buffett is arguably helping out small investors by doing something he's never done before: splitting shares of Berkshire Hathaway stock. As part of the purchase of Burlington Northern Santa Fe (NYSE:BNI), Berkshire will effect a 50-1 split of its lower-priced Class B shares. A single B-share is currently worth around $3,300; after the split, one share should cost between $60 and $70.

But is this just another example of Buffett saying, "Do as I say, not as I do?" After all, he's called derivatives the equivalent of "financial weapons of mass destruction," but he often uses them to facilitate his own investment strategies. He's also been opposed to using stock to make acquisitions, but at least part of the rationale behind this stock split is to make shares accessible to Burlington shareholders. And while he was urging Americans to "Buy American" last year, he wasn't so much purchasing Goldman Sachs (NYSE:GS) stock as lending to the company -- at fairly steep rates, too.

Buffett's example simply shows that you shouldn't invest via catchphrases alone. Sometimes, you've gotta break the rules -- even if they're your own. But not everyone is enamored of the route Buffett has chosen. CAPS member alexpaz, for example, thinks the Oracle's time has passed:

You paid too much for BNI. You own WFC? You sold your soul to Goldman Sachs...Your time has passed as the "oracle".... its 2009, the bear market will swallow your ego whole...What is a derivative anyways, did you find out yet?

Admittedly, that's a minority viewpoint. Roughly 97% of the more than 3,000 CAPS members who've rated Berkshire Hathaway believe it will outperform the broader market. stefaith believes critics are missing the point when it comes to Berkshire:

The market seems to have forgotten everything about Berkshire that is important. Buffets bet on GS has already earned billions. GE is not in the money yet, but the point to remember is that Berkshire is still getting a hefty 10% on its loan, no losses here. Finally the insurance coverage on the overall market will almost certainly prove very profitable. The only weakness is in Berkshires's investment in building related businesses, and this represents only a small percentage of the company's portfolio

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.