A feature that distinguishes the world’s best institutional investors is that they have all paid a lot of attention to their governance.
Governance, as a term, is most often focused on Board activities, but to be comprehensive it needs to consider all the people and processes an organisation puts in place to achieve its mission. When sophisticated investors talk about governance they do so with this wider context in mind. That means they’re not just thinking about how to make their Board (or Investment Committee) work more effectively but how the management team (whether internal or outsourced) contributes to mission success and the various frameworks put in place to guide good decision-making.
Investors that don’t have good governance attributes tend to be inconsistent in their approach. Their goals might keep shifting. They miss key warning signals. Very commonly they look for success in chasing past returns.
Our Governance thought leadership series outlines what governance is, the importance of having good governance, how it can impact returns, and how unaddressed governance challenge can lead to unintended and undesirable effects.