While the misfires in clear thinking called cognitive biases often pop up in business, it was still really surprising to hear attorneys from the firm Fredrikson & Byron talk about them in relation to the problem of employee embezzlements.
An inability to really get the risk was one of Fredrikson partner Joe Dixon's explanations for why executives often don't buy insurance that covers embezzlement costs. The managers skip insurance coverage because they know the employees, so of course they are all trustworthy. There seems to be a greater risk of being hit by lightning.
"It's a persistent problem," he said of employee theft. "And people are always shocked when it happens."
In one way the managers are right about how much trust there is in their workplaces. The only kind of employee to ever pull off a long-running embezzlement scheme is somebody well known and completely trusted, Dixon said.
Dixon and his law partner Dulce Foster have both often cleaned up after embezzlement messes, so the firm decided recently to share some lessons with business owners and managers in a seminar, and earlier this week in a conversation at the firm's Minneapolis office.
A basic cognitive bias we all have to watch out for is ignoring information that doesn't seem to fit what we firmly believe about the world. That is what seems to be happening when managers overlook odd or even pretty suspicious behavior, quickly talking themselves into the conclusion that there must be an innocent explanation. And then they move on.
Foster likened it to noticing a troubling spot on your skin and convincing yourself that the spot is just a harmless new freckle, so no need to have it checked by a doctor.
The right approach for management is not to completely give up on trusting employees, Dixon said. Instead it's to trust and verify.