On some boats, especially those that have been repowered with a more powerfull engine, that leaves the exhaust system on the small side.
Sometimes the exhaust is simply to small resulting in a too high back pressure which restricts air entry to the engine which limits power or causes dark smoke due to insufficient air.
Changing the exhaust to a larger size can be a serious problem. One fix is as you likely have. Reduce the water flow through the muffler and the rest of the system by sending some of that water volume over the side. That reduces the need for a larger exhaust and reduces back pressure problems.
One advantage is a look over the side tells you the RWP is working.
It takes a bit of fiddling to get the water flow through the muffler right. Too little water can result in a hot or burned exhaust hose or muffler.
But of course some effort must be made to ensure that this will work as expected.
They usually start with too much water, then turn the flow down while measuring the temps to ensure sufficient water is flowing through the muffler to keep things cool even a WOT.
A better explanation can be had by perusing,
The Seaboard Marine site by TOny Athens, which by the way is where I learned about this. His exhaust system articles.
But yes, get rid of that gate valve by going to a bronze ball valve. Just be carefull it is good, real bronze. Buck Algonquin or Groco and some others.
The only not as good part of the ball valve is the adjustment is coarser but some real care should take care of it.