Between shareholder-friendly stocks expected to underperform the market, and highfliers that pay little heed to their owners' interests, you'll find 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. ISS 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 which 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*





Energy Conversion Devices (NASDAQ:ENER)




Manitowoc (NYSE:MTW)




Stone Energy (NYSE:SGY)




Take-Two Interactive (NASDAQ:TTWO)




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 success in investing, there are many other factors an investor should consider. How well a company treats shareholders shouldn't be least among them. Consider these rankings one way to gauge how these businesses stack up against one another, relative to their shareholder policies.

Go to the head of the class
Just mention that the solar industry can't survive without subsidies, and adherents immediately counter that oil, coal, and other fossil fuels are also highly dependent on subsidies.

The Environmental Law Institute says that fossil fuels received subsidies totaling $72 billion between fiscal 2002 and 2008, while renewable energy sources got around $29 billion. Of that latter amount, corn-based ethanol production got more than half. Level the playing field, and the Solar Energy Industries Association says that solar energy could provide as much as 15% of the nation's electricity needs by 2020.

Yet even with the tax credits already on the books for solar power, Energy Conversion Devices seems to be having a tough time getting its PV panels installed. The thin-film specialist saw revenue fall 55% last quarter as demand remained weak, resulting in a net loss of nearly $12 million.

There's simply too much supply, which is depressing average selling prices. Solar chipmaker Applied Materials (NASDAQ:AMAT) underscored that view when it reported that all of its business lines were doing quite well, thank you very much. But the company observed that there's been a glut of crystalline silicon capacity built up over the past two years, and the industry still needs to adjust.

While there's some truth to the notion that we're subsidizing our dependence on fossil fuels, primarily oil and coal, those payouts might not be as great as the numbers first suggest. For example, the $72 billion figure cited above includes $6.3 billion in federal assistance to states for low-income home energy programs. Other items seem to stretch the definition of an industrial subsidy, too, though we're still handing out plenty of tax dollars to oil companies.

Letting each industrial segment compete on its own merits would be best, but demand for fossil fuels still seems exceptionally strong regardless.

CAPS member cec76 expects that Energy Conversion Devices will eventually be a good investment. But for now, the industry's oversupply will hold it back:

at some point this company will be a good buy...but the solar market is overflowing and that time to get in is not in the short term. 

I believe if [Energy Conversion Devices] breaks 13 and stays, this will be a good entry point. until then, stay away.

The company is trimming back its workforce to more closely match industry demand. Yet shops like Yingli Green Energy (NYSE:YGE) and SunPower (NASDAQ:SPWRA) are reporting surprising quarterly results, even as others are struggling. Investors need to carefully assess the value of solar competitors that just can't thrive in the current climate, with or without subsidies.

A Foolish quotient
Many factors go into whether a stock is a buy or a sell. 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 is a Motley Fool Rule Breakers pick. The Fool owns shares of CapitalSource. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey holds no financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy is a capital idea.