Serial entrepreneur and inspirational speaker Kevin McCarthy's prison sentence for his involvement in the $90 million Znetix scam taught him a lot about blind spots, the “hidden biases, implicit associations, memory traps and thinking errors that affect your behavior and decision-making.”
FEI Daily spoke with Kevin McCarthy as he prepares to speak to members of the FEI New York City Chapter on Wednesday, March 28 about the three blind spots we should all be aware of, working with Znetix “ringleader” Kevin Lawrence, and the dangers of ethical fading.
FEI Daily: Why did you decide to write your book BlindSpots: Why Good People Make Bad Choices and what can business leaders learn about their own blind spots?
Kevin McCarthy: My overarching vision and goal is to really provoke thought and to help people to become more aware of the things we don’t know – the blind spots that impact our decision-making processes.
I’ve categorized blind spots into three groups: preoccupation, oblivion, and presupposition. The premise of preoccupation blind spots is that we’re moving at the speed of life, as I like to call it. So often we’re preoccupied with the day-to-day minutia of what we do and, sometimes on a larger scale we’re so preoccupied with our career trajectory that we’re just simply not paying attention to some of the things we really should be paying attention to. We make decisions in that mindset that end up having adverse effects on our relationships and our careers.
The oblivion blind spots are the psychological areas that are impacting our decision-making and our behaviors that, most of the time, we’re not even aware of. We make snap judgments and we make a lot of faulty assumptions. We make decisions when we’re in emotionally or physically depleted states, not realizing that we’re in those states.
There are a lot of pressures – external and internal. Who’s putting pressure on us to make these decisions? What kind of time crunch are we under making these decisions? I think often of the 5,300 Wells Fargo employees who had external pressures put on them and then internal pressures by the incentive reward bias, as Charlie Munger would refer to it. Sales people suffer from that quite frequently.
The presupposition blind spot is the times where we bring out presuppositions into our decisions. The most common one is confirmation bias. We may have a bias towards what we think the outcome should be or what we want the outcome to be and we bring that bias into our processes of investigation and data collection and decision making and if we’re not paying attention and aware that it’s a presupposition that we’re trying to confirm, we may not end up with the best outcome.
We’re unaware that we have a presupposition when it comes to how people should behave, in our opinions, and how decisions should be made, in our opinions, because we filter all of our behaviors and all of the thought processes through our worldview. And we’re not really cognizant that we’re filtering it through our worldview. Our reality is our reality.
FEI Daily: Why is confirmation bias problematic for business leaders, in particular?
McCarthy: Confirmation bias can be very subtle. We may have a desire to please the board or to make sure the company is put in a really positive light and those are healthy, natural desires. We may not necessarily realize that there’s this bias that’s driving us. If you're aware that you have this confirmation bias, then you can manage that effectively by making sure that as you approach the investigation or the collection of data, of the financial package or whatever it is you're working on, by being cognizant of that bias, then we can manage the process better because we can challenge our own assumptions.
FEI Daily: Another bias you discuss in the book is the expert fallacy. How does that cause good people to make bad decisions?
McCarthy: The more we become experts, the more proficient, the more senior we become in our area of expertise, sometimes we end up having these blinders and don’t even realize it. We end up with this framework through which we view our reality and that framework, because of our expertise and because of how seasoned we are, we believe that we’ve really got this thing figured out.
We become so top of our game in our field that it actually begins to create this delusion. You see this in areas where you get all these acronyms behind your name and suddenly we start believing our own press and thinking ‘I’ve arrived, I'm the expert.’ Because of bias reinforcement, it makes it even harder to humble ourselves and open ourselves up to ‘I don’t know what I don’t know’ or ‘didn’t see that coming.’ It’s a more difficult place to actually accept and own and maintain an awareness of blind spots, and yet it’s even more important at that level.
FEI Daily: On a personal level, what are the lessons you’ve learned through this experience?
McCarthy: I was suffering from the expert fallacy. I was an entrepreneur who, I felt, had arrived. Before I met Lawrence and became involved in his scheme, unwittingly, I had just sold a small dotcom company and, for me, I felt like ‘I’m a smart guy. I was able to build my own little empire.’
I look back and realize that I suffered from the conspiracy thinking blind spot. One of the thing that Lawrence was masterful at was understanding human nature. There were 34 employees, as you know, 12 went to prison. But for each one of us, we all had different weaknesses, and he was able to really exploit those weaknesses. Mine was conspiracy thinking.
When the cease and desist came out, everybody was up in arms. A couple of things he said were really key, as I thought through it later. He told us not to worry and that the state ‘has to do what it has to do. They’re kicking the tires, they're going to slap me with some fines.’ According the Lawrence, he’d violated some securities rules but ‘behind closed doors at the SEC, we have on our team Jim Sargent, who’s the former head of the SEC and he’s working with the SEC to help us go public.’ Another term he used was ‘the Billionaire Boys Club.’ The old adage was basically that there was a whole other set of rules for those in high places. And I had believed that.
When it’s part of your worldview that you think that there’s a different set of rules for those in the billionaire club or those who are in high, powerful places in government, it makes it easy to succumb to ethical fading and ethical dilemmas.
FEI Daily: Tell me more about ethical fading.
McCarthy: Ethical fading is a big issue that needs to be considered. It takes place when accumulation of small discrepancies or indiscretions become part of the culture. You can be right in the middle of an ethical dilemma and you don’t realize it because ethics have faded into this abyss of nothingness.
It’s the seemingly innocuous decisions that we make on a regular basis, if we’re not careful that causes us to make larger and larger unethical decisions over time. It’s in the financial statement, its harmless to move something from one category to another because it’ll look better and it’s not really illegal. You could make a case that this data set could easily be put in either of these categories. At what point does this minor manipulation suddenly become a major manipulation and we didn’t realize it because of ethical fading. It’s a very slippery slope.