The role of good governance in shaping organizational outcomes 

Uncertainty describes the challenges of navigating unpredictable economies and markets—factors largely beyond an investor’s control. Complexity, on the other hand, reflects the intersection of a paradox of choice investors face from an ever-growing universe of asset classes, strategies, and products available to them with the time horizon, liquidity, and regulatory/legal constraints on their mandate. 

While different challenges in nature, they both require a clear system of roles, responsibilities, and decision-making processes to guide investment oversight in response to the former, and to construct an optimum portfolio from the latter. In other words, a good governance framework that ensures alignment with an organization’s objectives, risk tolerance, and regulatory obligations.

Mercer’s 2025 Large Asset Owner Barometer highlighted that nearly half (49%) of respondents cited governance as a significant or highly significant risk to assets under management (AUM), up from 36% the year before.

These results signal that large asset owners recognize that weak governance is a significant risk and the potential impact of weak governance is growing with the unsettled state of investment markets. When decision-making structures are unclear or unresponsive, the impact can cascade—eroding portfolio value, compromising stakeholder confidence, and causing reputational damage.

Examples of governance gone wrong are sobering and we see it all the time.  Examples range from missed opportunities to explicit losses.  In one instance, a lack of clarity between an asset owner and its fiduciary manager led to major communication breakdowns and substantial financial losses. In another, an asset owner’s failure to follow its own policies on rebalancing lead to a lost opportunity to cement gains and buy lower priced assets. These examples underscore that governance isn’t just an operational matter—it’s a strategic imperative.

Governance isn’t only about compliance. When structured properly, it provides a foundation for more resilient portfolios, faster decision-making, and greater agility—transforming governance from a reactive function into a competitive advantage. On the other hand, ineffective governance can be a drag on results, lowering returns and increasing risk.

Effective investment governance ultimately serves as the backbone of an asset owner’s strategy. At its core, good governance ensures that all stakeholders are working in alignment—in pursuit of investment returns, certainly, but also toward broader organizational goals beyond their direct investment objective that may encompass mission alignment or even reputational priorities.

Structure is equally essential. The oversight and execution structure of an organization, whether it be one committee and one staff member or multiple levels of committees and teams, must be organized for effective decision making and oversight. . These groups must be empowered through clearly defined mandates and responsibilities, allowing for agile and informed decision-making to manage a complex and evolving investment landscape.

An organization’s investment policy plays a pivotal role in good governance. A robust Investment Policy Statement (IPS) articulates the organization’s ultimate objectives and mandate, return objectives, risk appetite, investment  strategy (across both public and private markets), liquidity needs, tax considerations, and environmental or social commitments if appropriate. This policy must be more than a static document—it should be regularly reviewed and refined to remain relevant. Further, it should be a foundation for the investment operation, clearly stating the objectives and constraints that all investment decisions should support.

Governance also hinges on clear and effective decision-making roles. For larger organizations, a documented Delegation of Authority (DoA) matrix and committee charters provide the transparency and clarity needed to ensure that decisions are made by the right people at the right time. This avoids duplication of effort, reduces the risk of oversight gaps, and helps streamline execution. Further, it provides confidence in the decisions being made.

Moreover, the ability to access timely, comprehensive portfolio data is vital. Investment teams need access to real-time analytics and tools that provide a “total portfolio view,” which allows them to understand exposure to various risk factors—such as equity, credit, liquidity, and term premium—rather than relying solely on asset class information . These insights enable smarter decision-making and help identify opportunities or vulnerabilities across the full portfolio.

Finally, a hallmark of strong governance is a culture of continuous improvement. Governance should never be static. The most effective organizations regularly revisit their processes, structures, and decision-making frameworks to adapt to market shifts, organizational changes, and emerging investment opportunities. This requires openness to feedback, regular reviews, and benchmarking against peers or best practices. A dynamic approach ensures that governance remains a strategic asset—not just a procedural necessity.

Taken together, these characteristics create a governance model that is aligned, structured, clearly articulated, data-informed, and continuously evolving. When implemented cohesively, they form the foundation for a governance system capable of navigating complexity, managing risk, and positioning an organization for long-term success.

When an organization’s governance is aligned with its strategy and embraces flexibility, it can be transformed into a powerful tool for potentially gaining a competitive edge. To reap these benefits, investors should ensure their organization is fully aligned at all levels in terms of objectives, vision and priorities. They need to be sure that the time and effort being spent on tasks are actually achieving the desired results.

Governance doesn't just reduce risk; it positions organizations to move faster, act smarter, and capitalize on opportunity. In today’s increasingly complex investment environment, governance should not be treated as a compliance function or box-ticking exercise, but as a strategic lever for high performance. What we call the governance premium, helping you remain confident about how your investment portfolio will behave, even in the toughest market conditions.