Some take this verse to mean that a child must receive corporal punishment for wrongdoing if a parent loves that child. The rod, I suspect, is a metaphor for discipline in general, not just corporal punishment. This seems to bear up as the following disciplines him diligently is translated literally as seeks him diligently with discipline. This makes sense, as we humans tend to be a mass of learned behaviors. We learn some things from our parents and others from our siblings (if we have any); some things from our friends and others from our adversaries. We learn from everyone and not everything we learn is worthy of brain space. A parent that loves their child will seek to strip away the muck that accumulates as we wander through life with other people. The loving parent is looking for the child they have seen at home; the good potential that they want to see realized. Being a father myself, this touches on a need for me to carefully observe my daughter and to recognize her good and Godly potential and to try to see that potential realized through discipline — discipline in my own life and discipline administered to my daughter.
More, this extends upward. God calls Himself our Father. This means that He, as the ultimate Loving Father, will [seek me] diligently with discipline. God will discipline me to bring out the potential for Godliness and good that He sees within me. In short, He will pursue the absolute best version of me and discipline will be the method that brings that out. It is my part to cooperate; to become disciplined in my walk with Him that I might, in turn, pursue righteousness.