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 that also sport above-average CGQ scores, either in their index group or among industry peers.


CAPS Rating
(out of 5)

Index CGQ

Industry CGQ

Bristol-Myers Squibb (NYSE:BMY)




Disney (NYSE:DIS)




Dynamic Materials (NASDAQ:BOOM)




Harris & Harris (NASDAQ:TINY)




UnitedHealth Group (NYSE:UNH)




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
With shares of Bristol-Myers Squibb up more than 20% over the past year, investor sentiment now seems to be building against the drug manufacturer. The latest numbers show short interest rising over 140% for Bristol.

There could be several reasons the market is souring on the drug maker. Its top-selling drug Plavix will being losing patent protection in 2011, with analysts expecting its income contribution to fall off a table. The drug currently brings in almost $9 billion annually for Bristol and partner Sanofi-Aventis (NYSE:SNY), however Bernstein research recently predicted the drugs's $3 billion in pre-tax income today to fall to just $156 million in such profits by 2015. Ouch.

Moreover, an experimental rival to Plavix being developed by AstraZeneca was shown in clinical trials to cause less serious cardiovascular events.

Still, with dozens of drugs in its pipeline, CAPS member JamesMBaker believes Bristol-Myers Squibb won't have trouble maintaining its position:

Drugs will enhance our quality of life and they are just now getting started. BMY has a good portfolio and management is focused on enhancing revenues for future growth. Great dividend also. What's not to like?

Bristol does hold its own when it comes to R&D expenditures, spending just under 18% of its revenues. While that's well below Merck (NYSE:MRK) at 21% of sales, it's better GlaxoSmithKline, which spends 14%. And considering a good portion of Merck's recent increases to R&D spending weren't in-house, but rather to small biotechs for licensing, Bristol is holding its own as a top R&D shop.

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.

Harris & Harris Group is a Motley Fool Rule Breakers selection. Walt Disney and UnitedHealth Group are Motley Fool Stock Advisor picks. Walt Disney and UnitedHealth Group are Motley Fool Inside Value selections. Dynamic Materials is a Motley Fool Hidden Gems pick. The Fool owns shares of Dynamic Materials and UnitedHealth Group. Try any of our Foolish newsletter services today, free for 30 days.

Fool contributor Rich Duprey owns shares of Disney 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.