The purpose of a corporate center is to do for the subsidiaries what they cannot do effectively for themselves. Many structures serve this purpose: operating companies, multibusiness companies, holding companies, conglomerates, and even investment firms such as Berkshire Hathaway—all are different ways for a single, central parent to deliver value to its business units. The newcomer to the list is the equity carve-out. Like its predecessors, the carve-out enables a subsidiary to draw on the wisdom, experience, and practical assistance of the executive center. But it also offers something new: a degree of independence that appears to foster innovation and growth.

An equity carve-out is the sale by a public company of a portion of one of its subsidiaries’ common stock through an initial public offering (IPO). Each carved-out subsidiary has its own board, operating CEO, and financial statements, while the parent provides strategic direction and central resources. As in any other corporate structure, the parent can provide executive management skills, industry and government relationships, and employee plans, and perform time-consuming administrative functions, freeing the subsidiary’s CEO to concentrate on products and markets. What is different is the way in which the role of the corporate center is clearly...