Why it works, and why it doesn't

Due to the candidacy of Mitt Romney, former executive with Bain Capital, the subject of holding companies and how they work is in the papers.  Unfortunately, it seems that too many people have an axe to grind, so here's my humble (and y'all know my axe, which I'll keep at my side if I can) contribution--I worked for a business unit of a holding company for a few years, so I've seen the inside of what can go on.

Holding companies can work wonders because they have a set of accounting metrics that, all too often, the original owners of the company didn't pay attention to.  Hence, decisions are made without a good accounting of ROI, and when these companies finally get someone to look closely at the accounting, a lot of foolish decisions are prevented.

They can also run into disaster if they don't ferret out upper managers who know nothing but the accounting metrics--the guys that know how to "juice up" the metrics by shipping products that shouldn't be shipped, holding up incoming shipments to keep inventory down, and so on.   In doing this, management enshrines Deming's "Seven Deadly Diseases" and side-steps their central role; setting up the systems with which their subordinates make their products.

In short, holding companies can work when they remember what their accounting metrics are used for, and can fall into disastrous outcomes when they don't.  Just like the rest of us.