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 seek 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 max)

Index CGQ Ranking*

Industry CGQ Ranking*

Abbott Labs (NYSE:ABT)




Axsys Technologies (NASDAQ:AXYS)




Bristol-Myers Squibb (NYSE:BMY)




Pfizer (NYSE:PFE)




Procter & Gamble (NYSE:PG)




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 investors should also consider, including how well a company treats its shareholders. Consider these rankings one way to gauge how these businesses stack up relative to their shareholder policies.

Go to the head of the class
There's something to be said for a company staying within its circle of competence, since venturing beyond the realm of the known can lead to flagging performance. Think of eBay (NASDAQ:EBAY) purchasing Skype, ostensibly so that bidders could chat with sellers.

How about a diaper and detergent maker investing in a chain of car washes? Consumer-goods maker Procter & Gamble has signed a deal for the franchise rights of a 14-outlet Atlanta car-wash chain, which it will rebrand with household cleaner mascot Mr. Clean. The company is keeping an eye toward going national in order to boost its growth.

I'm not so certain P&G will clean up in this business, and not just because it's failed previously with a laundry service. There's just not much to distinguish one car wash from another. Although car washes may be a $35 billion industry, according to company estimates, suds and water are pretty much a commodity here. Going in as a franchisor, rather than owning the businesses outright, does help P&G assume less financial risk, but less is not none.

The consumer-products giant would probably be better off focusing on the inroads that private-label goods are making on its brands. Unilever (NYSE:UL), which recently reported higher quarterly growth than P&G, suspended its guidance for the year in order to give itself room to be more promotional, if necessary. Procter & Gamble, on the other hand, plans to stick with its current multi-tiered price schedule, saying it's unconcerned about private-label sales.

With its bevy of top-shelf brand names, however, some investors think P&G's current price still offers a blue-chip chance to get in on a beaten-down stalwart. CAPS member jawilde says that P&G's decent dividend, combined with any price appreciation, should eventually pay off:

Finally cheap enough to make a great Total Return investment. Blue-chip company, which makes essential products, with a P/E under 13 and a yield greater than 3%. Great buy and hold opportunity.

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.

Unilever is a Motley Fool Income Investor selection, while Pfizer is a former pick. Pfizer and eBay are Motley Fool Inside Value recommendations. eBay and Axsys Technologies are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services 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 here. The Motley Fool has a disclosure policy.