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Governance
How to think like a sovereign wealth fund
Why sovereign wealth funds offer a governance playbook for organizations of every size.
Rapid read:
- Think like a sovereign wealth fund: Effective boards anchor decision‑making in a clear organizational identity, strong alignment, and a long‑term horizon to navigate complexity and disruption.
- Diversity with alignment drives resilience: High‑performing boards combine intellectual diversity and constructive conflict with deep alignment around purpose, values, and accountability.
- Governance enables strategy: Long‑term stewardship requires boards to go beyond episodic strategy, strengthening people, information, processes, and culture to sustain competitive advantage.
Once viewed as conservative, state-owned investment vehicles, modern sovereign wealth funds have evolved into sophisticated investors with headlines crowning them modern venture capitalists, market leaders, and even influencers.
In less than a decade, assets under their management have more than doubled to over $15tn – exceeding the scale of the world’s third-largest economy. They now shape some of the most fundamental debates in society, from geopolitical power and conflict to artificial intelligence and its use in ethical decision-making.
But while their increasingly global and alternative allocation strategies gain media attention, what I find far more interesting (and what board members should be taking note of) is the unique sovereign wealth fund governance thinking that enables these decisions to be made.
It rests on three principles: identity, alignment, and horizon, and together they offer board members a practical framework to elevate strategy, build resilience, and sustain a competitive advantage in increasingly complex and chaotic times. Leaning on over two decades of work with these state-owned leaders, I offer the questions to ask and the practical steps to take to help your board think like a sovereign wealth fund.
Step 1: Create an organizational identity
Organizational identity is not a branding exercise. It is a multifaceted, multidimensional representation of your organization, and when curated strategically and reflected by a diverse, intellectually controversial, and aligned board, it can fortify your organization against crisis.
Today’s climate is turbulent, with an unprecedented rise in the number of conflicts that boards must contend with. Arising alongside these conflicts and given far less attention is the emergence of identity-building as a resilience mechanism.
Sovereign Wealth Funds offer a shining example of this identity shield. Their governance is anchored in representing the identity of the country and its intentions, values, and purpose. Successful organizations have followed in these footsteps, including Bosch, whose foundation-based ownership structure helps preserve a distinctive corporate identity and long-term orientation; Tata Group, which has created a long-standing identity anchored on trust and public purpose, reinforced through the role of Tata Trusts; and IKEA, whose ownership structure and culture have supported a strong and enduring corporate identity.
Organizations must craft an identity that the board can both embed and reflect in its decision-making. To achieve it, you must ask:
- Purpose – what do we want and why do we want it?
What is our purpose? What do our owning family or stakeholders hope to see? At a higher level, is it our role to set those goals and create this identity? And are we all aligned? - Character – who are we?
Who are we, and what do we believe and represent? Whether you are Swiss-based or Saudi, conservative or liberal, entrepreneurial or traditional, there are infinite dimensions. I call this the character dimension of identity building – it can also be softer, spiritual, or social, courage, honesty, or fairness. - Inputs and outputs – where does our capital come from?
Is it coming from a family, the state, the government, or a foundation? Where do your employees originate from? Where are your systems from? If you’re an African telecommunications company, are you using Chinese or US systems? If you are a Japanese refiner of critical minerals, are you sourcing your minerals from China or Canada? While China offers a bigger platform and arguably puts you in a more competitive market position, it can place you in a complex spot in the geopolitical system. This all contributes to creating your identity.
These dimensions shape decisions long before strategy documents are drawn. Once defined, your organizational identity must be embedded and reflected in an aligned board.
The ideal board brings together people who are controversial to one another and who can host intellectual discussions with ownership and responsibility.
Step 2: Enable diversity and ensure alignment
Alignment should not come at the cost of uniformity. Diversity of thought is one of the great engines of a board; it is part of the dialectic process and the governance of decision-making, yet the global rise in conflicts has made board members less willing to accept views that differ from their own. With that limited diversity, boards need to foster an alignment with the organizational identity.Â
The ideal board brings together people who are controversial to one another and who can host intellectual discussions with ownership and responsibility. This sense of accountability is one of the biggest drivers of quality board membership. High-quality boards are typically successful at managing their mix of personalities. How many times have we read news stories attributing boardroom confrontations, showdowns, and dramatic exits due to a clash of personalities? Steve Jobs being fired from the board of Apple is one such case. Boards need to map out, understand, and learn to work with a range of personalities. You need conflict, you need controversy, you need diversity, and yet, all of these must align with your organizational identity.
Toyota is one organization that understood this brief and, in 2016 and 2017, made a series of changes to its organizational structure, including its boardroom, citing the need for quick judgment, decisions, and action through genchi genbutsu – onsite learning and problem-solving – because ‘the changes the company faces require a different way to think and act’. As boards recognize the need to accelerate innovation, they also need to be more receptive to appointments of younger members whose background may expand the board’s collective experience and expertise.
It’s something that could hinder not just effectiveness but reputation and market standing. Norway’s sovereign wealth fund – the largest in the world – has been taking a stand to vote against companies in Europe and the US for their insufficient representation of women on boards. In 2023, it decided to extend this stance to Japan, announcing its decision to vote against all-male boards, impacting 300 listed companies.
The board must evolve, challenge assumptions, and actively shape the future. Beyond its structural ‘hardware’, it should radiate a well-managed diversity of personality, experience, gender, and opinion, and it is the responsibility of the chair to foster an environment that enables that.
Defining identity, purpose, and mission is a long-term task, and the board is its primary steward.
Step 3: Think long term
Defining identity, purpose, and mission is a long-term task, and the board is its primary steward. It must ensure this vision aligns with the overall business strategy.
In a traditional governance context, strategy can remain with management. It has a short-term time horizon of two to five years and requires little engagement from external stakeholders. As I like to say, it requires no governance power. This works well for boards operating in a simple context. However, simple contexts are no longer the norm, and organizations are increasingly operating in a complex and chaotic context. When you travel down that road, the board must become more co-creative, which requires its members to think long-term. Â
In traditional publicly listed companies, this foresight stretches eight to 15 years; in a family business, this is typically 25 years – overseeing the next generation – but in a sovereign wealth fund, board members take a 50–75-year view as the board is looking at the horizon of the state.
Boards must look to the future and work backwards to ensure organizational longevity, ensuring their image of the future is in alignment with the purpose, character, and ownership of the organization.
To operate and, importantly, succeed at this level, board members need to redefine how they work as a board – moving beyond episodic strategy discussions that do not align with the identity, character, purpose, or mission of the organization and focusing on the mechanics of governance. This is where I often refer to the four pillars of governance.
Perform this final checklist to ensure your board enters strategy discussions in a sophisticated and aligned way – able to complement management rather than compete or confuse.
People:
- Are your fellow board members there for the board? Do they care about the organization? Are they loyal?
- Where do you truly add value to this board?
- How confident are you in your board colleagues steering the company in the right direction?
- How is your diversity in terms of abilities, personalities, and competencies?
- Is the agenda sufficiently future-oriented?
Information architecture: Â
- Do you have access to the right quality of information?
- Do you know and closely track the business and its key value drivers?
- Are you well-informed of competitive trends, customer evolution, regulatory changes, technological changes, and stakeholder evolution?
- Do you have sufficient information that is independent of management, available for your judgment?
- What informal processes of information do you have?
Structures and processes:
- What is the list of processes that are particularly important to your organization?
- Strategy
- Nomination
- Evaluation
- Performance review
- CEO succession
- Risk
- Board education
- Audit
- Regulatory compliance
- Onboarding/outboarding
- How do you feel about each of these processes?
- Do you have a clear view of each?
- Is each complete and detailed enough?
- Do you have the right committees? Are the right people on them?
- Are your reporting lines robust and reliable?
Dynamics and culture: Â
- Is there a minimum level of psychological safety?
- How do you feel about the contribution of the different board members? Why?
- Does the culture of your board provide for well-managed meetings and ‘equal participation’ in discussions?
- Do you listen to the opinions of others? Do you challenge others, respectfully but without conceding, while keeping the relationship personal?
- How regularly do you share your values and your long-term perspectives on the organization?
Sovereign wealth funds are unique vehicles. They integrate identity, alignment, and long-term horizon into the core of their decision-making, allowing them to grow in assets and influence without losing sight of their mission, purpose, or values.
Think to the future
Sovereign wealth funds are unique vehicles. Governed on behalf of a nation, their ultimate beneficiary is not a shareholder, but future citizens, shifting governance away from short-term performance and focusing on stewardship, permanence, and long-term national interest. They integrate identity, alignment, and long-term horizon into the core of their decision-making, allowing them to grow in assets and influence without losing sight of their mission, purpose, or values.
Successful boards will imitate the sovereign wealth fund governance mindset and, before getting stuck into strategy and battling against the increasingly chaotic and complex tide that is today’s business environment, ensure they are performing as they should and create a frame for strategic decision-making. This means creating an organizational identity focused on mission, purpose, character, and time horizon, and performing an evaluation of its people, information, processes, and culture.
This governance mindset will allow your organization, led by the board, to endure disruption and to shape the future with credibility, confidence, and strategic freedom.
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