What's the flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. But some top-flight companies 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 Ranking*

Industry CGQ Ranking*

Archer Daniels Midland (NYSE:ADM)




Dynegy (NYSE:DYN)




Endo Pharmaceuticals (NASDAQ:ENDP)




Exelixis (NASDAQ:EXEL)








Sources: 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
The global market for pharmaceutical cancer treatments is expected to top the $100 billion mark next year. In the hopes of tapping into that market, the brain-cancer therapy XL184 that Exelixis has under development with Bristol-Myers Squibb (NYSE:BMY) is a key component of its overall growth plan, as it remains Exelixis' sole Phase 3 drug candidate.

Last month, though, an independent review of trial results dealt the drug a bit of a setback, with a suggestion that the treatment benefited fewer patients than was previously reported. The news wasn't a total bust -- one JPMorgan analyst said the results still "more or less compare favorably" to Roche's drug Avastin. But the announcement disappointed investors, and shares sold off.

Our CAPS community of investors, however, has upgraded its view of Exelixis recently, no doubt in part because of a new, potentially lucrative deal it inked with Sanofi-Aventis (NYSE:SNY). CAPS member jbonds points to the opportunity to bank $1 billion in potential milestone payments as the reason for giving it the thumbs-up. Top-rated All-Star italiafool figures that as long as the drug developer keeps coming up with new treatments, it will eventually bloom into a multibagger: "'Build it and they will come,' or more like 'make the drugs and they will buy them'. The long term outlook from this price point is a multibagger waiting to happen."

A corny joke
Also surprising the market with unexpected news was Archer-Daniels Midland, whose earnings were afflicted with ergot last quarter. An oversupply of crops and weak pricing, along with some one-time charges, caused profits to wilt 98% to just $8 million, or $0.01 per share. Even excluding those charges, the results were well below analyst expectations of $0.49 a share, and significantly below last year's effort.

But with the U.S. Department of Agriculture expecting wheat, corn, and soybean prices to recover -- perhaps not all the way back to the record highs they hit last year, but still at historically above-average levels -- CAPS All-Star BSHumphreyII sees some bullish opportunities seeding this stock: "A potential wheat shortage caused by the spread of stem rust overseas could be very bullish for ADM. Also, it doesn't look like ethanol mandates are going anywhere but up with the current administration, and that will continue to drive up corn prices."

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.

Exelixis and GeoEye are Motley Fool Rule Breakers picks. The Fool owns shares of Exelixis. 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's disclosure policy is a capital idea.