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Markkula Center for Applied Ethics

Navigating the Complexities of Family and Business

A Business Ethics Case Study

Natalia Garcia ’23

Natalia Garcia ’23 graduated with a major in economics and minor in international business and was a 2022-23 Hackworth Fellow with the Markkula Center for Applied Ethics.


As the CFO of a family business, Mary has been put in a difficult position, both by the lasting way the pandemic affected the family business and by family conflict about how to move ahead. 

The family business is centered around a revenue-generating building that her grandfather built back in 1910; it is typically rented out as a source of passive income. However, the building is currently not occupied by any tenants, as the pandemic has lowered the demand for office spaces. The building has five shareholders, including Mary, her older brother Donald (who is the president of the family business), her older sister Sally (who is the secretary), and her two cousins. The building is valued at 10 million dollars, and the shareholders have complete ownership of the business, with no debt to pay off. Although all shareholders are minority stakeholders, Mary’s brother has the highest percentage of ownership, equal to 26%. Mary and Sally own just over 25%, and the two cousins, together, own about 23%. 

Recently, Donald has said that he wants to be done with the complexities and legalities of the business, and has asked to be bought out. His expectation is to be paid the full percentage of ownership times the fair market value for his share, putting his expectation at over 2.5 million dollars, since, he argues, “family” wouldn’t give anyone less than their full share. 

However, Mary knows that that’s just not the way that the business marketplace works. It is a well enshrined principle that a minority shareholding cannot expect to receive a buyout amounting to a proportionate valuation of the entire issued share capital (shares gain in value to the extent they also reflect voting power within a company; a minority shareholder has less voting power and thus less valuable shares). When you have a minority interest in a business, you’re going to be bought out at a discount, and it is not unusual for that discount to be up to 30%. Donald will not accept such a discount and remains firm in his belief that as a family member, he should be bought out in full. 

Since no one is likely to buy out Donald’s share in the business, Mary and others agree that the only way to satisfy her brother’s wishes is to sell the building. Donald believes that this is the best option, as their children have no interest in continuing the family business. Mary’s two children, Sally’s three, and Donald’s two are all self-sufficient. Donald argues that they should just rip the bandaid off and sell the building to avoid passing on the responsibilities and burdens of the business to their children. 

However, Mary recognizes that selling the building has significant tax implications. After taking inflation into account, Mary believes that they would be lucky to sell the building for 4 million dollars. After splitting the proceeds by her 25% share, she would receive one million dollars, which would be subject to state and federal taxes, ultimately reducing the amount of money she gets to keep to $500,000. Given the tremendous tax burden, Mary believes that selling the business would not be worth it for anyone involved.  

Mary reminisces about how she utilized the solid monthly income generated by the building’s tenants a few years ago to support her children and send them to college. She is reluctant to give up the business and lose a substantial amount towards taxes, simply because the building has no current tenants. Mary also believes that hiring people to manage the business is a viable solution. 

However, Mary is aware that her brother does not share the same viewpoint and is reluctant to use his own savings to hire external individuals to run the business. He deems it too risky and not worthwhile, particularly since all their children are well-employed and uninterested in handling the business any further. 

Due to the significant difference in opinion regarding the fate of the building, it may ultimately come down to a vote. Corporate governance necessitates regular board meetings with all shareholders on the board. Therefore, Donald would need to convince their sister Sally to support him in voting to sell the building and thus in effect liquidate the corporation so that they could have a majority of about 51%. 

If it comes down to a vote, Mary fears that personal animosity may harm her relationship with her family members. She ultimately must decide whether to put her financial interests first, or her relationship with Donald. How should Mary proceed, and what are the ethical considerations that should guide Mary’s decision-making process?

Questions to Consider

  1. Please identify what you think are the most significant ethical values at stake in Mary’s decision? It will be important to identify these values on all sides of this dilemma. For assistance, please consult the section, “Six Ethical Lenses” from the Framework for Ethical Decision Making by the Markkula Center for Applied Ethics.

  2. Is it essential to separate personal emotions from business decisions?

  3. Consider the virtues of fidelity, self-care, justice, and prudence, and how they relate to the difficult decision Mary must make as CFO. What virtues should Mary prioritize, and why?

  4. In considering the potential sale of the family business, how should the shareholders balance their sense of justice towards Donald's expectations for a full buyout with the prudence of recognizing market realities and the tax implications of a sale? What virtues should guide their decisions?


Aug 10, 2023