The flip side 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 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.

Company

CAPS Rating

(out of 5 max)

 

Index CGQ Ranking*

Industry CGQ Ranking*

AK Steel (NYSE:AKS)

****

72.8%

93.2%

E*Trade Financial (NASDAQ:ETFC)

****

61.8%

90.7%

Medarex (NASDAQ:MEDX)

****

91.3%

93.5%

SanDisk (NASDAQ:SNDK)

****

73.4%

98%

Take-Two Interactive (NASDAQ:TTWO)

****

68%

85.8%

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 successful 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 the amount of supply still floating around, investors in the chip industry have been feeling the sting. But a few industry players may have heeded the call to action, issued by my colleague Anders Bylund, for someone to start consolidating. SanDisk became the target of such buyout speculation a few weeks ago when it was reported that Samsung and Toshiba both may be interested in the chipmaker.

Samsung, of course, had already tried to snap up SanDisk last year for $26 a share; the flash-memory manufacturer scoffed at the offer. SanDisk said the offer was too little, even though at the time its stock was trading in the low teens. Samsung ended up bitterly dropping the offer a month later. Even with SanDisk's shares selling for $13 nowadays, it's rumored that the chipmaker still wants $60 a share, which ought to be enough to turn off any potential suitor.

No doubt that might stall anyone thinking of making a low-ball offer; as the world's largest supplier of flash storage, SanDisk still has some pretty bright growth prospects. In addition to offering its Sansa digital music player, SanDisk has begun selling its slotMusic memory cards, which come preloaded with music (though not everyone is a fan), and it looks to grow into USB backup and solid-state disk (SSD) drives.

According to Gartner researchers, 20% of computing devices will have SSD drives by 2012. The primary barrier to wider acceptance of SSDs has been cost, but prices have been dropping. Everyone from Samsung and STEC (NASDAQ:STEC) to Seagate Technology (NYSE:STX) and Western Digital are diving into the water, but the competition might also result in SanDisk's own efforts being less profitable. As for the USB backup drive opportunity, SanDisk is offering consumers the ability to back up their computers efficiently and conveniently with a drive holding 64 gigabytes of memory.

SanDisk seems to be a tempting target for a takeover, but not every investor is so sure, perhaps thinking it will price itself out of the market again. CAPS member ice23bear looks for the stock to drop soon enough:

When the take over rumors end, this stock will come back to earth hard. Even in a bad economy, [SanDisk] losses in the 4th quarter where HUGE. The funny, thing is that i like their products. Even in better times only their patent license fees were keeping them in the black, so this has been a long time coming.

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.

Take-Two Interactive Software is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.