Virtue ethics is an agent-based approach to ethics. This approach focuses on the fundamental 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 defined as a desirable character trait, such as courage, that lies between two extremes, rashness and cowardice. The virtuous agent is involved in a continual quest to find balance in ethical decision-making. Such an agent does not apply any specific ‘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, fairness, integrity and consistency.
Virtue ethics is currently one of three major approaches in normative ethics. It may, initially, be identified 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 fact that the consequences of doing so maximizes happiness of those affected by the act of helping. A deontologist points to the fact 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 fact 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“. The aim is to perform 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.
The virtue ethics approach focuses on the “integrity” of the moral actor. The goal with this approach is to be a good person. In virtue ethics, one’s character emerges from a “relevant moral community”. Therefore, it is important to account for the moral agent’s community or communities within which she operates. This approach is particularly useful for individuals who work within a professional community that has developed high standards of ethical conduct for community members
Moral Virtue is a Habit
Aristotle’s criteria for the virtuous person is as follows: You must have knowledge, consciously choose the acts and choose them for their own sake, and the choice must come from a firm character, in accordance to who you are. You must consistently choose to do good acts deliberately for the right reasons. You cannot be considered virtuous for catching a ball before 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 friends. You should have saved the child from 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 effort to give up, in time and with effort and practice becomes quite normal and is no effort 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 from repeated actions.
There are 2 types of virtues. Intellectual Virtues are excellences of the mind, for example, the ability to understand, reason, & judge well. Intellectual virtue comes from being taught. Moral Virtues are learned by repetition. For example, by practicing honesty we become honest. To be virtuous requires knowledge, practice & consistent effort for character building. Moral virtue results from 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 forming the correct habits as a young basketball player learning to shoot the ball.
In personal/life development, virtue ethics transforms 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 for 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.
Rajat Gupta and Insider Trading
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-profits organizations, The Gates Foundation, The 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 fines. His trial began on May 22, 2012. On June 15, 2012, Gupta was found guilty on three counts of securities fraud and one count of conspiracy.
The primary parties are affected are Rajat Gupta, McKinsley & Company, Goldman Sachs, Raj Rajaratnam, Galleon Group, Warren Buffet, and the U.S. equity markets. Other parties indirectly affected are family and friends of Rajat Gupta, employees at McKinsley & Company and Galleon Group, investors in Goldman Sachs and its creditors, and government and officials involved with the case.
In September 2008 Warren Buffet agrees to pay $5 billion to Goldman Sachs in exchange for preferred shares in the company. This news is likely to raise the share price of Goldman Sachs. The news is not supposed to be announced and made public until the end of day. Less than a minute after the board approved the Buffet purchase, Rajat Gupta calls his longtime friend Raj Rajaratnam, a hedge fund manager and billionaire founder of Galleon Group. Once Rajaratnam gets this information, he immediately buys shares of Goldman Sachs. Next day when the stock market opens, Raj Rajaratnam makes nearly $1.2 million in profits as Goldman Sachs shares rose. The SEC estimates the tip leaked by Rajat Gupta generates profits and avoids losses of more than $23 million.
Would a virtuous person have leaked the information to Raj Rajaratnam? Rajat Gupta showed a failure of character:
Integrity: Integrity is honesty and truthfulness or accuracy of a person’s action. Rajat Gupta does not show integrity to his company Goldman Sachs, where he was a Board of Director. Instead gives away insider information for personal benefits.
Trust: Rajat Gupta broke the trust to other Directors on Goldman’s board and to of other people with whom he has done business. His actions affect the relationship with McKinsley & Company.
Fairness: Rajat Gupta’s actions are not fair for two reasons. First, other investors who do not have the information on Buffett’s deal are at a disadvantage. Second, he uses the information entrusted to him to benefit himself and Rajaratnam.
Honesty: He was not honest with Goldman Sachs and his fellow board members to whom he implicitly promised not to share inside information.
Self-Control: If Rajat Gupta had self-control he would not have leaked inside information to Rajaratnam for 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 world’s leading companies and organizations. A word that was used repeatedly in media coverage for 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 financial scandals remind us that the assumption is not well-founded
As a true professional, the good manager strives to achieve a moral excellence that includes honesty, fairness, 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 financial institutions, enhanced corporate governance, and increasing the awareness of customers. Yet, a root of the problem is not addressed: not teaching financial ethics in business schools, where moral decision making should be the core lesson. If business schools provide future financial managers with a proper ethical education, there is a chance that situations like “Rajat Gupta and Insider Trading” may occur less frequently.
By: Pratik Patel
- Linda K. Trevino, Katherine A Nelson, “Managing Business Ethics”, (2010) Fifth Edition
- James Rachel, “The Elements of Moral Philosophy”, (2009) Sixth Edition
- Raj Gupta: Virtue is never a Given, Retrieved from
- Blame Business Schools, Electronics Resource, Retrieved from http://www.businessweek.com/debateroom/archives/2008/11/us_financial_cr.html
- John Graafland & Bret Van de Ven, “The Credit Crisis & the Moral Responsibility of Professional in Finance”