Governing subsidiaries for value

A practical framework for stronger portfolio performance

By Paolo Pigorini, Lutfi Zakhour, Bandar Alkheraiji, Mayar Akrameh, and Karan Chhabra

Viewpoint | April 2026 |

Introduction

Across the Middle East, organizations in the public, private, and third sectors are creating subsidiaries to focus on specific parts of ambitious goals related to economic returns, diversification, new markets, and social missions. Subsidiaries offer a way for large organizations, which are often centralized, bureaucratic, or policy driven, to respond quickly to fast-changing economic, social, and technological realities.

The trend is a strategic shift toward greater specialization and agility. By creating distinct new entities, traditional organizations can concentrate talent, expertise, and resources on specific objectives, such as infrastructure development, healthcare, digital transformation, or investment management. Not only can subsidiaries move faster than larger organizations, but their narrow focus can improve accountability. Moreover, they often have a freer hand to fund new opportunities, form joint ventures, take risks, or pilot innovations than if they were operating within the parent organization’s traditional framework.

Determining level of oversight

Source: Strategy& analysis

However, all these benefits depend on strong governance to preserve the strategic direction and brand integrity of the parent. Weak oversight can create significant risks, operational friction, and reputational damage. In the Middle East, some subsidiary ecosystems have suffered from overlapping mandates in addition to limited transparency and vague performance metrics. These issues reduced strategic coherence and the parent organization’s ability to achieve goals. With this risk in mind, we have identified the main governance pitfalls, as well as the elements critical to designing a strong yet flexible oversight model for subsidiaries.

Conclusion

Creating subsidiaries is an excellent way for governments, holding companies, and foundations to address specific parts of complex, ambitious mandates and goals. They can act with greater focus, speed, and agility than the parent organization. But as national priorities evolve and as organizations rely more heavily on subsidiaries to deliver results, these portfolios will become ever larger and ever more complex to manage.

In response, parent organizations need to implement an oversight model that can reliably make decisions, allocate attention, and coordinate activity across subsidiaries with varied profiles. The correct oversight model strengthens the parent’s ability to guide long-term investments, manage risks, and support the development of new capabilities. It gives the parent confidence in its portfolio, creates predictable routines for boards and executives, and provides the direction subsidiaries need to deliver at scale and continue to unlock value.