THE VALUE OF THE PARENT COMPANY

Diversified companies consist of a number of businesses under the joint ownership of a single parent company. For this arrangement to make economic sense, the parent company needs to create value from its ownership of the businesses. Unfortunately, many parents destroy rather than create value. Value destruction is common because it is only under limited conditions that value will be created, and these conditions are often absent. Successful diversified companies have unique qualities that enable them to create a great deal of value. They also have a parenting advantage: they can create more value from owning their businesses than could be created by rival parents. Using the criterion of parenting advantage as a goal for corporate strategy thinking makes it possible for corporate parents to avoid situations where they are likely to destroy value and to decide which skills need to be built to support new corporate strategies.