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Seven Pillars Institute

Applying Virtue Ethics: The Rajat Gupta Case
A Short Int roduct ion t o Virt ue Et hics Arist ot le

Virtue ethics is an agent-based approach to ethics. T his approach f ocuses on the f undamental character and motivations of the individual moral agent. Moral behavior is not limited or attached to a rule or any guidelines, but rather involves the individual rationally pursuing moral excellence as a goal in and of itself . According to Aristotelian virtue ethics, virtue is def ined as a desirable character trait, such as courage, that lies between two extremes, rashness and cowardice. T he virtuous agent is involved in a continual quest to f ind balance in ethical decision-making. Such an agent does not apply any specif ic rules in making ethical decisions, but rather attempts to make decisions that are consistent with the pursuit of a particular kind of excellence that entails exercising sound moral judgment guided by virtues like courage, wisdom, temperance, f airness, integrity and consistency. Virtue ethics is currently one of three major approaches in normative ethics. It may, initially, be identif ied as the one that emphasizes the virtues, or moral character, in contrast to the approach that emphasizes duties or rules (deontology) or that which emphasizes the consequences of actions (consequentialism). Suppose it is obvious that someone in need should be helped. A utilitarian will point to the f act that the consequences of doing so maximizes happiness of those af f ected by the act of helping. A deontologist points to the f act that, in helping the one in need, the agent is acting in accordance with a moral rule such as Do unto others as you would be done by. A virtue ethicist points to the f act that helping the person is exercising the character trait of benevolence. All the three moral theories will agree that helping the person in need is ethically correct. Aristotle is an early developer of virtue ethics. Aristotle writes, The virtue of man also will be the state of character which makes a man good and which makes him do his own work well. T he aim is to perf orm the right action, with the right person, to the right extent, at the right time, and in the right way. Although this is the objective, Aristotle considers achieving this goodness as rare, laudable, and noble Aristotle believes people are naturally suited to do the right thing, but do not automatically develop such inclinations to do good. He strongly believes you are what you do, so in that respect the ideal virtuous person does the right thing because she desires to be virtuous. One cannot be accidentally or coincidentally virtuous. T he virtue ethics approach f ocuses on the integrity of the moral actor. T he goal with this approach is to be a good person. In virtue ethics, ones character emerges f rom a relevant moral community. T heref ore, it is important to account f or the moral agents community or communities within which she operates. T his approach is particularly usef ul f or individuals who work within a prof essional community that has developed high standards of ethical conduct f or community members

Moral Virt ue is a Habit

Aristotles criteria f or the virtuous person is as f ollows: You must have knowledge, consciously choose the acts and choose them f or their own sake, and the choice must come f rom a f irm character, in accordance to who you are. You must consistently choose to do good acts deliberately f or the right reasons. You cannot be considered virtuous f or catching a ball bef ore it hits a child in a baseball game thus saving that child, if you simply wanted to catch the ball and take it home with you as a trophy to show to your f riends. You should have saved the child f rom the incoming ball out of genuine virtue and care towards the child.

To achieve the ability to be moral requires developing the proper character. To develop the proper character requires developing virtues. To develop virtues requires developing moral habits. Aristotle said, By abstaining from pleasures we become temperate, and it is when we have become so that we are most able to abstain from them . What begins as a great ef f ort to give up, in time and with ef f ort and practice becomes quite normal and is no ef f ort at all. Aristotle also believes we learn virtue by doing the right things constantly until we are habituated. We learn by doing as children and character is the result of habits, which in turn, are developed f rom repeated actions. T here are 2 types of virtues. Intellectual Virtues are excellences of the mind, f or example, the ability to understand, reason, & judge well. Intellectual virtue comes f rom being taught. Moral Virtues are learned by repetition. For example, by practicing honesty we become honest. To be virtuous requires knowledge, practice & consistent ef f ort f or character building. Moral virtue results f rom developing proper habits. Neither intellectual nor moral virtue arise without active intervention and participation. According to Aristotle, We first acquire the potentiality and later exhibit the activity. We develop virtues by practicing them. In a similar vein, we learn the arts and music. We learn virtues by doing them repeatedly and f orming the correct habits as a young basketball player learning to shoot the ball. In personal/lif e development, virtue ethics transf orms the meaning of doing What is right and wrong? to What kind of person you are and does this action fit into what you are? Virtue ethics in personal development allows a dynamic way of thinking that allows a person to grow and to learn that everything is not black and white. A virtuous person is not simply one who just does a good or right act once in a while, rather a virtuous person is someone who consistently chooses the right acts f or the right motives. Being virtuous is a habitual act and you are what you do. If you lie constantly, you are a liar and the act of lying establishes that character trait in you. In business, if you cut corners and practice unethical business tactics you are an unethical businessman.

Virt ue Et hics Theory Applied: Rajat Gupt a and Insider Trading The Players

Rajat Gupt a

Rajat Gupta is an Indian American businessman who was the managing director of management consultancy McKinsey & Company and a business leader in India and the United States. Rajat Gupta also served as corporate chairman, board director or strategic advisor to Goldman Sachs, Procter and Gamble and American Airlines , and non-prof its organizations, T he Gates Foundation, T he Global Fund and the International Chamber of Commerce. Rajat Gupta was convicted in June 2012 on insider trading charges. He was sentenced in October 2012 to two years in prison, an additional year on supervised release and ordered to pay $5 million in f ines. His trial began on May 22, 2012. On June 15, 2012, Gupta was f ound guilty on three counts of securities f raud and one count of conspiracy. T he primary parties are af f ected are Rajat Gupta, McKinsley & Company, Goldman Sachs, Raj Rajaratnam, Galleon Group, Warren Buf f et, and the U.S. equity markets. Other parties indirectly af f ected are f amily and f riends of Rajat Gupta, employees at McKinsley & Company and Galleon Group, investors in Goldman Sachs and its creditors, and government and of f icials involved with the case.

The Transact ions

In September 2008 Warren Buf f et agrees to pay $5 billion to Goldman Sachs in exchange f or pref erred

shares in the company. T his news is likely to raise the share price of Goldman Sachs. T he news is not supposed to be announced and made public until the end of day. Less than a minute af ter the board approved the Buf f et purchase, Rajat Gupta calls his longtime f riend Raj Rajaratnam, a hedge f und manager and billionaire f ounder of Galleon Group. Once Rajaratnam gets this inf ormation, he immediately buys shares of Goldman Sachs. Next day when the stock market opens, Raj Rajaratnam makes nearly $1.2 million in prof its as Goldman Sachs shares rose. T he SEC estimates the tip leaked by Rajat Gupta generates prof its and avoids losses of more than $23 million.

Et hical Analysis
Would a virtuous person have leaked the inf ormation to Raj Rajaratnam? Rajat Gupta showed a f ailure of character: Integrity: Integrity is honesty and truthf ulness or accuracy of a persons action. Rajat Gupta does not show integrity to his company Goldman Sachs, where he was a Board of Director. Instead gives away insider inf ormation f or personal benef its. Trust: Rajat Gupta broke the trust to other Directors on Goldmans board and to of other people with whom he has done business. His actions af f ect the relationship with McKinsley & Company. Fairness: Rajat Guptas actions are not f air f or two reasons. First, other investors who do not have the inf ormation on Buf f etts deal are at a disadvantage. Second, he uses the inf ormation entrusted to him to benef it himself and Rajaratnam. Honesty: He was not honest with Goldman Sachs and his f ellow board members to whom he implicitly promised not to share inside inf ormation. Self-Control: If Rajat Gupta had self -control he would not have leaked inside inf ormation to Rajaratnam f or personal gain. Gupta was commended by people who knew him as a person who helped others. He was very active in providing medical and humanitarian relief to the developing countries. Born to humble circumstances, he became a pillar of the consulting community and a trusted advisor to the worlds leading companies and organizations. A word that was used repeatedly in media coverage f or Rajat Gupta during his trial was respected. In the past, much less so now, we assume people in leadership positions are virtuous. However, instances like the Rajat Gupta insider trading case and other f inancial scandals remind us that the assumption is not well-f ounded As a true prof essional, the good manager strives to achieve a moral excellence that includes honesty, f airness, prudence, and courage. Various mechanisms are suggested to develop moral character amongst practitioners and avoid ethical lapses as in the Rajat Gupta case. Suggestions include tighter government regulations, better systems and processes in f inancial institutions, enhanced corporate governance, and increasing the awareness of customers. Yet, a root of the problem is not addressed: not teaching f inancial ethics in business schools, where moral decision making should be the core lesson. If business schools provide f uture f inancial managers with a proper ethical education, there is a chance that situations like Rajat Gupta and Insider Trading may occur less f requently. By: Pratik Patel

Works Cit ed
1. http://www.innovation.cc/scholarly-style/virtue-ethics-corruption.htm 2. Linda K. Trevino, Katherine A Nelson, Managing Business Ethics, (2010) Fif th Edition 3. James Rachel, T he Elements of Moral Philosophy, (2009) Sixth Edition

4. Raj Gupta: Virtue is never a Given, Retrieved f rom 5. http://www.f orbes.com/sites/johnbaldoni/2012/10/25/raj-gupta-virtue-is-never-a-given/ 6. Blame Business Schools, Electronics Resource, Retrieved f rom http://www.businessweek.com/debateroom/archives/2008/11/us_f inancial_cr.html 7. http://ejbo.jyu.f i/articles/0901_3.html 8. http://www.innovation.cc/scholarly-style/virtue-ethics-corruption.htm 9. http://edoc.ub.uni-muenchen.de/12156/1/Villa_Jesus_Simeon.pdf 10. John Graaf land & Bret Van de Ven, T he Credit Crisis & the Moral Responsibility of Prof essional in Finance inShare2

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