"Governance risk" is one of numerous risks that investors need to be cognizant of before buying bank stocks. This assesses the system of rules, practices, and processes by which a company is managed and controlled. It's tracked by the shareholder advisory firm Institutional Shareholder Services' QuickScore 3.0, which looks at four categories of corporate governance to produce a combined score, ranking banks on a scale of 1 to 10 (with 1 being the best).

ISS's Governance Risk Rating Categories

Specific Focuses

Board Structure

Board compensation, composition of board committees, board practices, board independence, etc.

Compensation

Pay for performance vs. non-performance based pay, used of equity incentives, golden parachutes, etc.

Shareholder Rights

Voting formalities, one share one vote, takeover defenses, etc.

Risk and Audit Practices

External auditor, audit and accounting controversies, etc.

Data source: Institutional Shareholder Services, How QuickScore Works.

The banks that fared the worst in ISS's latest assessment include JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), BB&T (NYSE:BBT), and M&T Bank (NYSE:MTB), among others. Most of these banks did particularly poorly when it came to risk and audit practices, with JPMorgan Chase and Bank of America receiving the worst possible score in this regard, as well as executive compensation, with BB&T and M&T Bank coming in at the bottom of the heap on this measure.

Scroll through the brief slideshow below to learn where these four banks ranked relative to the other firms that made the ignominious cut -- a table with the complete breakdown is provided below the slideshow.

 

Bank

Overall Score (Lower Is Better)

Board Structure

Shareholder Rights

Compensation

Audit & Risk Oversight

JPMorgan Chase

10

9

2

10

10

BB&T

9

9

6

10

2

M&T Bank

9

9

6

10

2

Capital One

8

4

6

9

2

Bank of America

7

10

6

2

10

State Street

7

5

8

7

2

Fifth Third Bancorp

7

1

8

4

10

Morgan Stanley

6

8

3

5

10

Goldman Sachs

6

2

5

6

10

New York Community Bancorp

6

8

5

7

1

Data source: Institutional Shareholder Services.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.