The flipside 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 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

(Max 5)

Index CGQ Ranking*

Industry CGQ Ranking*

American Science & Engineering (NASDAQ:ASEI)




Coca-Cola (NYSE:KO)




Dow Chemical (NYSE:DOW)




DuPont (NYSE:DD)




Fluor (NYSE:FLR)




Source: 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, there are many factors that 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
It looks like Dow Chemical is regrouping after the collapse of its joint venture with the Kuwaiti government. The chemicals giant is pursuing a legal remedy for the failure of the K-Dow collaboration, a move that may enhance its ability to close on the acquisition of Rohm & Haas (NYSE:ROH).

CAPS member mattskin thinks the roiled waters have been becalmed for the time being, providing a floor beneath Dow's stock that shouldn't be breached too severely here on out:

Looks like the storm from K-Dow has passed. So, I think a floor of ~$15 seems to be there. I think we could see this one drop back to under $15 here and there, but hold this through the chemical cycle, and you should be rewarded (as if a 10% dividend is not enugh incentive!). BUT, if the dividend is suspended, or the [Rohm & Haas] deal is pursued at all costs, all bets are off.

Is it safe?
It's a common enough refrain that during times of economic instability and recession, investors will engage in a flight to safety. Yet, some smart Fools think such sentiments could end up burning you, as it's tantamount to market timing or finding the next hot stock when markets are rising.

That doesn't deter CAPS member DODEA, who finds comfort in buying consumer staples stocks that will be needed regardless of the economy's direction. For that reason, he thinks Coca-Cola will provide a safe harbor, as would other core providers of the pantry, like Proctor & Gamble (NYSE:PG):

Unquestionably one of the safer picks, as well as [Johnson & Johnson] and [Procter & Gamble] with consumer staples. Safer picks usually do well in bear markets, so I'm counting on this stock to outperform. I feel good about it. Its dividend investment program means you can get more bang for your buck.

Speaking of safety, American Science & Engineering has been building out its installed base of bomb detection and drug discovery units, though it's done so in something of a lumpy fashion. Top-rated CAPS All-Star TSIF detects the hit-or-miss nature of American Science's efforts as a reason to question its valuation, in this pitch from just before New Year's:

While "fear" is a powerful tool and the US (and other countries), are way behind in their security infrastructure, (espcially parcels and cargo), sustainability in this economy, (government spending), reduced travel, shipping, etc, will drive down margins on these products as [American Science & Engineering] is not the only producer. Recent spike to a 52 week high shows the growth potential of this compnay with fresh oversea's orders, but unless margins grow much faster, the 10% they are showing currently do not support current P/E, P/B, and Book Value, though it may in another year or so. After Dividend, there was essentially no cash flowing to the bottom line in the last 4 quarters. Worth watching.

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 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.

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Johnson & Johnson and Dow Chemical are Motley Fool Income Investor selections. Coca-Cola is a Motley Fool Inside Value pick. American Science & Engineering is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Procter & Gamble.

Fool contributor Rich Duprey owns shares of Proctor & 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 has a disclosure policy.