What's the flipside to shareholder-friendly stocks that are expected to underperform the market? Highfliers that pay little heed to their owners' interests. But then there are also top-flight companies that treat their shareholders with respect. That's what we're going to focus on today.

Covering four broad areas, Institutional Shareholder Services -- the big name in corporate proxies -- measures how well a company performs in as many as 63 categories. Moreover, each company is scored relative to its market index and its industry group. The service assigns the stocks a rating that it calls it 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 also sport above-average CGQ scores, either in their index group or among industry peers.


CAPS Rating (5 Max)

Index CGQ Ranking*

Industry CGQ Ranking*

Allstate (NYSE:ALL)




Archer Daniels Midland (NYSE:ADM)




Arena Pharmaceuticals (NASDAQ:ARNA)




Buffalo Wild Wings (NASDAQ:BWLD)




Progress Energy (NYSE:PGN)




Sources: Yahoo! Finance, Motley Fool CAPS. *Relative placement when compared to 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 investing, an investor should consider many factors. How well a company treats its shareholders shouldn't be least among those considerations. So view these rankings as a way to gauge how the businesses stack up against one another relative to their shareholder policies.

Go to the head of the class
Even if Arena Pharmaceuticals beat analyst estimates by a little more than a nickel per share, its losses still widened in the latest quarter. But in this case, those wider losses were a result of increased spending on R&D for lorcaserin, its anti-obesity drug. More importantly, now that Pfizer (NYSE:PFE) and Sanofi-Aventis (NYSE:SNY) have withdrawn from the obesity market, there's an opening wide enough for Arena to drive a tractor-trailer through. Back in September, CAPS member DavidBear found the pharmaceutical's fundamentals sound and liked the chances of lorcaserin's approval.

Solid Fundamentals, on the verge of a new drug. The science would appear to be sound, blocking specific [receptors] in order to stop eating desire and avoid heart-valve damaging signals. My timing might be off by a bit, but I discovered this company today and did not want to forget it.

Mmmmm. Wings and beer! That killer combination has been working well for Buffalo Wild Wings. However, CAPS member blakeseely figures that compared to the S&P 500, the sports bar is going to have some near-term gristle stuck in its teeth, even if the long-term growth looks as hot as its wings sauce.

Management is spending for growth and will probably take some hits over the next couple quarters. In the long run, I think their growth strategy will probably pan out, but their prospects are going to be a little bit dicey for the next six months or so -- as the market dings them for spending. ...

[If] they've spent wisely and the economy turns around, they make be an excellent investment.

A Foolish quotient
Many factors go into whether a stock is a buy or sell, but do corporate governance policies enter into your equation? It pays to start your own research on these stocks at 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.

Buffalo Wild Wings is a Motley Fool Hidden Gems recommendation. Pfizer is a Motley Fool Income Investor selection and an Inside Value pick. The Fool owns shares of Pfizer and Buffalo Wild Wings. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey has no financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.