Joel Peterson on Leadership, Betrayal, and the 10 Laws of Trust
May 7 2018

10%20Laws%20of%20Trust.jpg How did the CEO of a real estate development company become chairman of an airline? How can a competent manager learn to trust his subordinates? Joel Peterson, Chairman of the Board at JetBlue Airways and author of The 10 Laws of Trust, talks with EconTalk host Russ Roberts about his career at Trammell Crow and JetBlue and how the concept of trust, outlined in his book, has helped his career. He closes the conversation with a discussion of how he overcame his personal weaknesses that would have handicapped his career--or as he puts it, how he "rewrote his operating system."

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


May 7 2018 at 3:42pm

Really enjoyed this podcast…a lot of memorable comments. I thought it was esp. interesting that Joel Peterson’s “three personal mantras” — honed through high pressure business dealings — sounded so similar to Robert Wright’s Buddhist insights (

Separately, for those interested in a soup-to-nuts view on developing a major office building in NYC, PBS had a wonderful series on Zeckendorf’s Worldwide Plaza many years ago. You can still stream it on Amazon, first episode is here

David McGrogan
May 14 2018 at 8:11am

I liked this conversation.

An interesting counterpoint to the old episodes with Mike Munger on gouging and natural disasters. I always thought there was something fishy about the economist’s defense of gouging in that context and now I realise what it is: a firm which is interested in genuine long-term success acts in a compassionate way in that context – not just because it is the right thing to do but because it builds trust and that provides an advantage.

Charles Brennan
May 19 2018 at 6:41pm

Very positive and inspiring. Peterson shares lots of good business information in this podcast.

Comments are closed.


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Podcast Episode Highlights

Intro. [Recording date: April 13, 2018.]

Russ Roberts: My guest is Joel Peterson. He is the Chairman of the Board of JetBlue; the Chairman of the Board of Overseers of Stanford University's Hoover Institution. He is the former CEO and CFO of Trammell Crow, one of the world's largest and most successful real estate companies.... and he is the author of The 10 Laws of Trust, a book we'll be talking about today.... I want to start with your career. Trammell Crow is an extraordinary company that a lot of people never heard of, and they also don't have really a good idea of what a real estate company does other than maybe buy land, build buildings, and then rent them out. And I know it's just a little more complicated than that. So, talk about what a company like Trammell Crow does, and how you got to the top of it.

Joel Peterson: Well, it does buy land, build buildings, and rent them out. But, it is very complicated to get there. And it's even more complicated, because it's made up of kind of a loose confederation of partners, who are spread across--in our case, it was 92 cities across the United States. And they need a degree of autonomy and freedom. And they are also independently wealthy. And so they are hard to manage. And you don't really want to manage them. They are entrepreneurs. And so their job is to basically take on the development process. Which is relatively complex. And we can talk about it, if you are interested. But, they take that on at a granular level within their local markets.

Russ Roberts: What's the national role that the umbrella organization plays?

Joel Peterson: So, one thing was to provide sort of a system of rules, policies, ways of going about things--hiring people that were consistent with our brand, on-boarding them properly, evaluating projects, making sure we had the right capital structure. And, typically, the right capital structure is thought of at two levels. One is at the deal level. Each deal needs to have, sort of, dead inequity capital; and then overall you have kind of a company-wide or at least division-wide national statement; and you want to monitor each of those, make sure they make sense. So, with that many people it's on-boarding and firing, removing people who don't perform. It's kind of the evaluation of it. When I first came on, I said, it was a little bit with Trammell Crow, like, he was the--

Russ Roberts: And that's a person's name, actually. I didn't know that. That's his--the founder's--it's Trammell Crow.

Joel Peterson: Yes. His name was actually Fred Trammell Crow. But, he thought Trammell Crow was a much more engaging name, and I agree with him. He was the 5th of 8 children that grew up on the wrong side of the tracks in Dallas, Texas. Went into the Navy in World War II [WWII] and came out without a college degree. I think he got a CPA [Certified Public Accountant] and then he started building a warehouse. And, from there, built more and more of them until he became the largest single private developer in the world. So, yeah. But he was kind of the hub. And, from him, radiated all of these spokes. So, he made individual deals with entrepreneurs in various cities. But there was no rim around the spokes. And that's really when I arrived--I worked with another fellow, and we actually tried to create a company. A lot of deal companies never become real companies. You know, they don't persist. They are not sustained over time. They last the life of the founder, and that's it. So, what we wanted to do was create what we called an evergreen company.

Russ Roberts: And, how did you do that?

Joel Peterson: Well, I think by making sure we had the right people in place. By making sure we had governance processes by evaluating each--not only each deal, but each division. And then making changes when they needed to, and having a--we set up a management board, a 10-member management board with representation. We tried to make common decisions about things that, you know, allowed us to be a company.


Russ Roberts: What's the chain of command in a situation like that, where you have people on the ground in all those different cities, each one with their own unique aspects of geography, regulation, all kinds of tax issues? How often did those people come to Dallas?

Joel Peterson: Several times a year, probably. But we traveled a lot out to their operations. I remember every October, November I was on the road almost for the entire 6 or 7 weeks that we were doing what we called management reviews, where we review each project, each division, each set of operations--the partners. So, there is a governance structure that you try to superimpose on this highly entrepreneurial enterprise. And you don't want to crush--in fact, you wouldn't get the best people if you reduce their autonomy. You want them to have an economic stake; you want them to make the decisions in their own areas of expertise.

Russ Roberts: And how do you keep people from, I'll call it 'going rogue'? That would include fraud, but it would also include just overconfidence, etc. Who is making the final decisions, and how does that get done?

Joel Peterson: So, that was actually a big challenge, and it was hard to make that happened. The best governor on that is to make sure that the regional partner, the guy that's overseeing that local fiefdom, really has an important stake--he has a net worth at stake--he's a competent, capable person with high integrity. That's the best control. Then I think you can have financial controls beyond that where you have CPAs [certified public accountants] and financial officers that review things and report in, so you have a level of financial oversight. And then I think this management board where you get people together and you develop a bit of camaraderie--you know, in the end, people don't want to disappoint each other. If you are at a table with 9 other developers, successful developers, you don't want to be the one that sort of violates the standard--that goes out and takes obscene risks. So, there's a little bit of that sort of self-governance that gets set up when you develop a set of principles and have high-quality people around the table.

Russ Roberts: We've talked a lot in the program about skin in the game. But there are other factors, differences in risk and prudence that differ across individuals. Did you have a philosophy for hiring, and for promoting, that tried to square that circle, deal with that tradeoff? Or, did you try to manage people as they went forward and you learned more about them?

Joel Peterson: Well, we tried to hire people that had a basic sense--you know, I don't know how many entrepreneurs you've been around, but they are really extraordinary people. They have a sense of where the puck is going to be. And this is referring to this Wayne Gretzky quote that you may have heard--that he was successful because he skated to where the puck was going to be. Well, these people tend to have a sense of that. I would say as CEO [Chief Executive Officer] I spent 40% of my time hiring and onboarding and evaluating people. More than deals. It was more important to get the right people. Now, what we did was we started out with the--and so we hired mostly from Stanford, Harvard, Wharton--the best business schools. And we started these young people out as leasing agents. And this was compared with big-paying jobs as consultants and investment bankers or wherever most of the MBAs [Masters of Business Administration] were going at the time. And we started them out at $18,000 a year as a leasing agent, plus commissions. And that's not a glorified job. I mean, that's not what MBAs really want to do. But, by trusting them, little by little, to make a least deal, we can evaluate how good they were in dealing with customers, how smart they were in evaluating the risk/reward, whether they were financially savvy. And then you trust them a little bit more to go out and buy land, and then to design a building. Over time, you develop this sense--by training people through--it's almost like an apprenticeship. And so, that was actually a wonderful control. But, like you said, there are people who go rogue at certain points in time; and that of course happened to us.

Russ Roberts: Yeah; my understanding is that Enterprise Rent-a-Car did the same thing--which was privately held originally. I don't know if they still are now, actually. But, basically had private control; and no matter how skilled the people are, they start behind a desk renting cars. The other advantage of that is: It lets people understand the business, obviously, from the very ground up. And then finally, the thing that Enterprise does--and I'm curious if Trammell Crow did this as well--they would be okay with, once that person became a manager, say, of an office, that manager can end up making more money than the CEO. And they wanted to allow that prize to motivate people to excellence and to--especially when they start on that ladder at that low level.

Joel Peterson: You know, it's funny: In a lot of organizations, the sales people make more than the CEO.

Russ Roberts: Yeah.

Joel Peterson: So, it's not unusual. And, you know, every organization needs revenue. And the people who generate revenue are pretty important. And if you find ones that have a broader scope than just making and closing the deal, you've really got something special. And that's what I think we had at Crow. We had people who were sort of full-gauge developers: they could go soup to nuts, and they had this ability to get along with people, to make sales in the most sophisticated way, in very complex transactions. So: Who better to trust?

Russ Roberts: And when you said $18,000 for a newly minted MBA--what year were you thinking of? Do you remember?

Joel Peterson: I was thinking of, well, all the way from probably 19-[?]--so I started out at $14,400. Which is by far my lowest offer. And I went to Europe. And then I think it didn't change, at least through 1990. So, we just didn't adjust that. People had to make money other ways--you know, either through commissions or through development profits.

Russ Roberts: Well, I just want to mention: 1980, when I came out of a Ph.D. program at the University of Chicago, my starting Assistant Professor salary was $18,800--I think was the number. I didn't get commissions, though; I just want to get that on the record.

Joel Peterson: Well, that was--you were paid more than Crow partners.

Russ Roberts: Yeah. I was ready--I was expecting that to last for a long time, and I would have been totally happy; but I've been more fortunate, financially, than that. As have most economists. It's been a good run for economists.


Russ Roberts: Let's go back to the day-to-day aspect of development. I have to confess, I have a bias against real estate developers. And I want you to either confirm it or challenge it. Which is: There is so much municipal regulation around land use in large cities, and certainly there is a lot in small cities, too. But in cities like New York City, San Francisco, Chicago--a huge part of that business must be involved in not just knowing the rules of the game but making nice with politicians. And I always felt that was an aspect of real estate--it was an unfortunate aspect in America, but a reality, that we don't really have this romantic, 'Well, it's your property. Do whatever you want with it.' In fact, it's highly, highly regulated. Talk about how that affected your business and how it might vary by city.

Joel Peterson: Well, you are right, it does vary by city, for sure. It is a part of the business. But, you know, I always looked at the developer's role as one of an orchestra leader. There are roughly 30 parties that touch a transaction from beginning to end, including consultants, lawyers, architects, engineers, financiers, property managers. It goes on and on. And one of those constituents, one of the people, one of the parties that has an interest is, of course, the government. It can be simple, if you are in, you know, Texas: In a lot of those cities you can get building approvals in a day or two. In New York City, for example, when we built Terminal 5 at JFK [John Fitzgerald Kennedy Airport], we had the Port Authority of New York, the Port Authority of New Jersey, two Governors, four Senators, historical societies, all kinds of interest groups, unions--I mean, so you had to have a certain political skill to deal with that. And you couldn't just ignore it and say, 'Well, I'm about design,' or 'construction,' or whatever. You had to be about those, too. So, what you find with developers--and this may change your view of--not of the process, but of the developer, in terms of somebody who can really juggle a lot of balls and not drop any of them until it's time to bring the whole thing together: It's a very complex process, that I think is misunderstood.

Russ Roberts: And one of my prejudices is--I have a lot of respect for the final execution. I mean, to build--just a simple--there's nothing simple about it, but to build a simple project relative to some others. One large building in a large city is obviously an enormously task. I have tremendous respect for that. The part that I have a little trouble with is the need to--the 'make nice' part. And the fact that--and I think this is the, the key part of this process when we think about the public policy side--it's inherently gray. It's inherently ambiguous. You know, if there were just complicated rules and you had to follow them, that would be straightforward. But, my impression is, a lot of the times the rules are deliberately not so straightforward. So, you have to spend time and money on those folks who could open doors for you, grease the right palms, etc. I'm not talking about an outright bribe, obviously, although that, I'm sure happens in some cases, and in various parts around the world. But, I'm just talking about the fact that there's a schmoozing--I don't know what the right--you tell me what the right word is.

Joel Peterson: No, I mean I think you are right. And it is more in some places than in others. And it is one of the more distasteful parts of it. In fact, the very first project I built was in Lyons, France. And it was in the middle of an industrial park, a building exactly like its next-door neighbors. And we could get a building permit. It went for 6 months without getting a building permit. And I couldn't understand what was happening until somebody said, 'Go to this law firm. They'll help you.' And the next Monday, I had the building permit. And then I got the bill; and it was F300,000 [300,000 francs]. You know.

Russ Roberts: I assume that's a lot of money.

Joel Peterson: It was a lot of money. Certainly at that point in time. It was a ton of money. And they made a phone call. And I don't know what happened. You know, and basically that was the end of my desire to do business in France. I was kind of done with that. So, it shows that I had the same visceral reaction you do. It was less an element--I mean, in the United States it's a lot more elegant. But I think it subtly is going on. You have to make sure that you are on the right side of the people who control these decisions. Now, many of them are wonderful, reasonable people who are just trying to protect--whatever. Historical issues, whatever. But there is this element that you've identified. But I don't think it's pervasive.

Russ Roberts: Did you have projects during your time there where you eventually hit a roadblock, much farther down the road than you would have been happy with? In other words, if you'd known how it was going to go, you wouldn't have started, but once you got to that point, you just had to still pull the plug?

Joel Peterson: You know, the one that I recall was in Georgetown. We built an office building in Georgetown that took us so doggone long to get through that the market actually turned against us by the time we were ready to get in the ground. And we had to actually start on scraping the earth, and we had the--we had financing, architectural drawing, engineering drawings. And we were moving forward with the project. And the market went against it. Which I think is the most common thing. It's not an historical--typically you've got all of those things buttoned down before you start. But, the market can turn against. So, at that time we thought about: Should we pull the plug? And then we realized that between the land costs and the soft costs, we had already spent 50% of the cost of the building. It was going to be 3 years before it was delivered to the market. So, why not go ahead? You know--the risks are lower going ahead than otherwise. But, yeah: You do have intervening variables. It's a little bit of scary business, that way. I mean, you have to be able to peer into the future and know what things are going to be like, when you deliver a project.

Russ Roberts: Because it's inevitably, even if--even if the regulatory process is smooth, building takes time. And that's just part of the reality.

Joel Peterson: [?]the exchange. We're in a dynamic market, for sure.


Russ Roberts: You're not at Trammell Crow now. You're out of that business in a formal sense. But, I'm curious, given what you experienced there, as CFO [Chief Financial Officer] and CEO, if you could change one thing about real estate, public policy, in America--and, of course, it's not a national market--there are national aspects to the market but it's not a national policy market. Each city has its own regulations. Each state has its own regulations. But, is there a type of regulation that you think is the most troublesome and not helpful? I mean, there are troublesome regulations that need to be there, perhaps? But ones that you think are there to protect, say, vested interests that we best be disposed of? Particularly, when we think about the high--the problems of the high price of housing in America today in certain urban areas?

Joel Peterson: Yeah. So, I think the regulations--where you have over-exuberant application of whether it's riparian rights or, you know, zoning rights, or historic--

Russ Roberts: That's water, 'riparian'--

Joel Peterson: Historical--I had a ranch property one time that I was trying to develop a home on. And they discovered that there was a San Francisco Garter Snake that lived on this property. So, they put little radio transmitters on this thing and followed them for 18 months to determine whether any of the traffic would interrupt these guys. And in the end it killed the project. I mean, we could have done it, but it just raised the costs so much--so I think the application of those kind of things over and over can be difficult. The one comment that you made early on, I want to reflect on, where you said there is not a national policy: There is not even a local policy. It's interesting: one time I was asked, 'How is the market in Los Angeles?' And so, I called our partners in Southern California, and they said, 'Joel, there are 130 markets in Los Angeles.' So, just to give you an idea of how fragmented the real estate business is: You really have to pay attention to--it's a very local business. And each property is, you know, has a longitude and a latitude to it that's unique.

Russ Roberts: But, you and I occasionally cross paths in Palo Alto in California. The price of housing in Palo Alto is very high. Very hard to build a house from scratch in California, in Palo Alto. Very hard to build an apartment building. And anything you want to do with land--they are, and I think it's true throughout the Bay area, and I think it's true in many cities: It takes time, and there's a huge amount of uncertainty around it, as you mentioned. Is there something that might be done in those situations that you think might make it better? Reduce that time?

Joel Peterson: Well, I think it--I think if you have a strong city council or somebody who can take control of all of these things. Because you have architectural committees; you have committees that look at protecting trees, arbor kind of thing. We built a home that took us 10 years to build, and it got delayed at every turn; and finally the various societies were fighting each other. One would say, 'Take out this tree,' and another would say, 'You've got to leave that tree: it's historical.' And so, if you had somebody that could arbitrate these things, and just sort of clear the deck. But, we went to a City Council Meeting--one time I finally took a lawyer with me, and she said, 'This is the most Kafka-esque meeting I've ever been in.' So, there is just sort of no way to break ties. You know, the famous story of Steve Jobs out there who he had a home that he wanted to take down; and they wouldn't let him do it. So, he just left all the doors and the windows open, and he said, 'Nature will take care of it.' Which is not the outcome you want to have.

Russ Roberts: No, that's not.

Joel Peterson: And then he pointed out: He said, 'You know, somebody may enter this property and get injured; and I'm going to hold the City responsible.'

Russ Roberts: The joke that comes to my mind--that's a true joke, unfortunately, I think--but the joke that comes to my mind is the guy on the plane, sitting next to the guy; he says, 'Where are you from?' 'Texas.' He says, 'What do you do?' 'Well, I have a ranch.' He says, 'Well, my ranch is so big you can't drive from one end to the other in a day.' And the guy next to him says, 'Yeah, I had a car like that once.' But, that's--like it took you 10 years to build a home. You might think, 'Oh, my gosh, it must have been an incredibly large--'. No, it wasn't. It was just--a lot of barriers and rules.

Russ Roberts: And we've talked it on the program--usually in the context of poor countries, the cost of doing business; and we've talked about the World Bank Report that looks across countries and how long it takes to get permits. And, you know, one of the things that gets recommended in those situations is something close to a one-stop shop, where, instead of going to the 40 different bureaus to get the different kind of permits, there's one clearing house, so you don't have to spend all the time. But clearly in America's cities, we have a similar problem.

Joel Peterson: Well, that would be my solution, too. I think if you just have an arbiter, you could come in and say, 'This is how it is.' Then, developers are very pro-active, kind of energetic folks. They'll get it done. But, they just need to know where the rules are. And, I think if you read Tom Sowell's stuff on the housing crisis in the Bay Area, you kind of see that it's derivative: The costs are derivative of regulations. And a lot of that is just the lack of clarity.

Russ Roberts: Yeah. And time introduces uncertainty, which introduces prudence and caution, obviously.


Russ Roberts: Let's switch gears. Let's talk about JetBlue. And--I mean this as a compliment; it may not sound that way; but, you have a strange career. You went from a very specialized--these are the stops that I know about; maybe there's more--but you went from a very specialized, I would call it almost an arcane aspect of business, which is what we've been talking about, the real estate development business; and then somehow you got involved with an airline. How did that work?

Joel Peterson: Yeah. I always tell people I can't keep a job, so I have several going at once. It is definitely a cobbled career. And I've had people who have actually looked at it and said, 'Wow. What a cool career. How do I get there?' And I have to say, you know, 'It's serendipity.' It's circumstances. You could never plan a career like this. But what happened with this was that one of my students at Stanford was with George Soros, who was backing a startup airline. And they looked around and said, 'You know what? We've got to bet the company decision in front of us to build a new terminal at JFK. And nobody has ever built a building.' And this is going to be a $750 million dollar project And, it's going to take years. And it's very complex, and everything. Why don't we get somebody on the Board who has ever done this?' And so, my student said, 'Well, you know, let's approach the guy who taught me real estate in business school.' And so, I agreed to put some money in, and went on the Board, and before long I was working on developing T5, Terminal 5, at JFK. And, before much longer I was the Lead Director of the company, and then finally its Chairman. So, never planned. But it just kind of came my way.

Russ Roberts: So, at that point, when that terminal was being imagined by Jet Blue, what stage of life was Jet Blue at?

Joel Peterson: Pre-plane. We had no planes.

Russ Roberts: Right. So, how--what kind of a business model is that? 'Oh, let's start a company with a $750 million dollar investment, with 5 jurisdictions, and lots of tree people, and water, and historic sites; and, let's go?'

Joel Peterson: This is called 'American entrepreneurship.'

Russ Roberts: That's a roll of the dice.

Joel Peterson: Well, it's amazing. I mean, a lot of times what you do, you've got a kind of an evaluation stage where you are thinking feasibility, market conditions, interests of various parties. The power of market demand and assessing that directly allows you to have some confidence that you'll get through it. For example, in a normal market you'd say, 'Well, what are the vacancies existing? What are the projects coming online? What does job formation look like? What's population growth?' And you'd do a feasibility study. And you'd figure out, you know, what you are going to build. And you'd add all those things together; and that would be a denominator. And then you'd assess the rents; and that would be your numerator. And you'd say, 'Okay, that's the yield on this project.' And then you'd go out and shop for capital, and you'd get a weighted average cost of capital between debt and equity. And you'd say if the yield exceeds the weighted average cost of capital, we've got a business. And you'd give probabilities to all of those things, and you move forward. Well, the same thing in this, airline business, is: We say, 'Gosh, we've got a catchment area--which is a market area--of 6 million people on Long Island on everything, and we've got an airport that is not used very much during the day in JFK. And we've got an empty terminal'--I don't know if you remember T6, Terminal 6--but it was rat- and pigeon-infested; it hadn't been flown out of for a long time. So, we basically started out by saying, 'We're going to scrub this, paint it, fix it up, and start flying some planes out of it.' So we flew out of T6 for a while. And then we basically said, 'Okay, we're now of a size that we know we've got to develop T5.' So, we know that T6, Terminal 6, was a temporary terminal for us. So, we knew we had to build. If we were going to build a great airline, we knew we had to build a great terminal. That was part of the plan.

Russ Roberts: Whose vision was that? Whose vision was it to get it started, to think: There's a market opportunity here for a new airline. I mean, it's really hard to start an airline.

Joel Peterson: Yeahoo[?]. Well, David Neeleman is an entrepreneurial genius. I think he's the greatest genius in the history of commercial airlines. He started three of them. He's just--he's an amazing entrepreneur. In fact, he started Azul when he left JetBlue, which is basically JetBlue in Brazil. So, it was his vision.

Russ Roberts: So, that's pretty incredible. Now, I don't know him. I don't know his work, except Jet Blue. But, my hero in the airline business has always been Herb Kelleher, of Southwest. And, I once heard him say that his edge--the thing that made Southwest successful--was his remembering that the bad times will come. He said, 'Everyone else just over-expands in the good times and forgets that it's a cyclical business.' Now, I'm sure there's a little more to it than that. But I'm curious: What's your reaction to that? And how has JetBlue dealt with that cyclical factor?

Joel Peterson: Well, I think he's right. It was more right in the past than maybe now, because there's been such a consolidation--

Russ Roberts: right--

Joel Peterson: There are four carriers that have 80% of the market now. And there's a lot more discipline. I think there's more discipline among the suppliers and among creditors, too. So, I think the industry has grown up, a bit. And I think there were some other things that had to do--I think the fact that they had one airline, aircraft-type--

Russ Roberts: yup--

Joel Peterson: that was a smart play. And I think they did some smart things with people. In fact, the head of their people group actually came over to Jet Blue and was on our Board there, and she actually headed up people, the hiring of people, so you can build a great culture--which Southwest had, too.

Russ Roberts: Yeah: in its heyday--I still think it's a good airline--but in its heyday when I think it was a better airline, as a traveller--I'm not talking about financially; I'm talking about a travel experience--I was always struck by how incredibly happy their employees were and how pleasant it was to interact with them. And I used to ask them, you know, 'Do you like working at Southwest?' And they'd say, 'Yes.' And it was clear they meant it. It wasn't a line. Somebody did a good job there.

Joel Peterson: Well, it's funny. I always say that--my rules for leading a company, any kind of company, are that you want to have respected members of a winning team doing something meaningful. And those three things, if you can be shown respect, if you can believe you are winning, and something you are doing is meaningful--people tend to flock to it, and stay with it. You can build a high-trust culture. So, I think Herb did a good job in that. By the way: David Neeleman sold Morris Air to Southwest Airlines, where he was kind of the CEO under June Morris; and then he lasted all of 5 months with Herb, and Herb fired him. And then he came and started his own airline, and was 10 years at JetBlue. And we tried to elegantly make a CEO change, but David insisted on telling the market that he'd been fired. So, we loved the guy. We think he was phenomenal as an entrepreneur. But, just not the right guy for the next stage. And so, he kind of moves--he does the entrepreneurial thing that entrepreneurs do like nobody else; but they often run into this thing, the academics call the 'founders' trap.'

Russ Roberts: Yeah.


Russ Roberts: Well, let's talk quickly, and then we're going to turn to your book, about the phrase 'Chairman of the Board.' I think for the average person who has never been in the world of business, I think we tend to think of the Board as typically until recently just an old guys' club--buddies with the CEO who, yeah, is somebody to bounce ideas off of. And then the Chair--his job is to run the meeting. Correct those impressions, if those are not the case.

Joel Peterson: Yeah. I think there are some boards that are a little bit like that. I think it is evolving, changing. Governance is getting better. There are people who evaluate. There are sort of rules, now, and you get a kind of a score, and investors pay attention to this score. There are things like: Do all board members need to be elected every year? Because, they used to have things staggered terms that allowed--it was kind of a poison pill against takeovers. So, there's a lot of things that have been introduced there. To me, what the Chairman does--fundamentally, the Board's responsibility is to evaluate and replace and hire a new CEO. The CEO should have all the management duties. So, the fundamental thing you are doing as a board is evaluating the CEO. And you are, of course, doing it against strategy, human resource development; you are doing it against customer responses; you are doing it against a whole series of metrics. But the Chairman, then, helps set the board agenda. The first thing I did as a Chairman is I set up a whole day off-site where we could just talk about strategy. Because, in today's world, in board meetings there's a lot of housekeeping. There's a lot of things you just have to do. You have a certain number of committees you must have; they must report; they have to have charters. There's a certain rhythm to running a board. So, you do all that stuff, but then you often don't really have time to get into, you know: What is going on in the market? What are our competitors doing? How do we build a deep and wide moat? And so, we started to go--I think in our 10th or 11th year--going off site for a day or two to really talk about the market, what our plans are there. So, I think the chairman is sort of the ultimate person to design an agenda to call tough issues--if you are looking at an M&A--a Merger and Acquisition--kind of issue, I think the chairman is typically the person that gets called by the other party. Sometimes the CEO, maybe. So, I think--and my view has been, it's to work effectively with the CEO--both to hold them accountable and to clear obstacles for them, to make their job easier.

Russ Roberts: And you have an investment firm that you run. We didn't mention that, but you spend a lot of time investing in startups and evaluating companies. How many hours a month is involved in your life with JetBlue? Approximately?

Joel Peterson: Well, it's--yeah. So, I would say--I typically have Saturday calls with the CEO. So, that's the way I stay in touch with the CEO. I talked with John Thompson who is the Chairman at Microsoft, and he says that that's what he does with Satya Nadella--that he just has a Saturday call, and they check in, just to stay in real time. And then you have quarterly meetings, which typically are a day's worth of committee meetings and a day's worth of board meetings. I'm forcing you to add this up as we go along. And then, the occasional call; the occasional special board meeting. And then, a two-day off-site. So, that's at least 10 or 12 days a year plus calls and things like that.

Russ Roberts: Are you spending outside time reading about what's going on in that industry? Or, somebody's sending that reading around to other folks on the board? Or you just kind of--I was going to say wing it, but that's not a good joke. I'm going to leave that out.

Joel Peterson: Heh, heh, yeah. No, we try to stay aware of what's going on in the industry. Sure.

Russ Roberts: But, do you end up spending time on that? Do you have to?

Joel Peterson: Yeah. You have to. I mean, you can't have a strategy that's independent of the marketplace. I mean, fundamentally, what you are trying to do is carve a unique niche in the market where you are providing something better, at a better value than anybody else, because you have an unfair advantage, you have a competitive advantage. You have pricing power. You have whatever power. You have to deliver a high-quality product that's high-value. And so you have to know what others are doing in order to do that.

Russ Roberts: I'm going to make another bad joke; and you have to believe me that this just came to me. I did not script it. I was going to mention that JetBlue is a blue-chip company. Let me just leave that alone.


Russ Roberts: But, my question is: As a traveler, as a consumer of Jet Blue--as a traveler, we see a tiny piece of a company like that. Right? We see the--it's a crucial piece, obviously. It can't go too badly for very long or it's over. But, JetBlue has a reputation for being innovative. And as an outsider, we often have no idea what that can possibly mean. You alluded to one example: That Southwest, because it only has one type of plane--which is a really clever idea; maybe they lucked into it, maybe it was planned; I don't know. But, because of that, their turnaround is famously shorter than other planes, other airlines, because they know the plane so well. Their parts and maintenance, as well, is easier; their inventory is easier to keep track of. Etc., etc. What other kinds of innovation are there in the airline business that might be going on that we don't see, that you can share if you can?

Joel Peterson: Well, there's a lot--it's funny: there was an industry that didn't change very much for a long time, and that was composites. And, you know, I was interested to learn that--you know, these winglets? I don't know if you know what a winglet is, but it's that--

Russ Roberts: No. And I don't know what you mean by a composite, either.

Joel Peterson: So, a composite is a kind of a--it's not metal.

Russ Roberts: Oh, you mean a material--yeah, yeah.

Joel Peterson: Yeah, the materials, that they can build planes out of now, and it extends the distances they can fly. But, for us, some of the innovations were TVs [Televisions] in seatbacks.

Russ Roberts: Yup.

Joel Peterson: We developed a new kind of seating that allowed us to give people more legroom without reducing the capacity of the plane. We developed this mint service[?]. But then, the things you don't see are in baggage handling, facial recognition--you know, getting people through TSA [Transportation Security Administration] lines. Seat check. These engine checks and things that you have to do. In fact, at Jet Blue, we even set up a company called Jet Blue Ventures, and located it in Silicon Valley, and we make investments in companies that have to do with all the various elements, soup to nuts, in the airline industry, and in fact in the travel ribbon. So, you know, it's an important thing. And it's hard--as companies get bigger, it's harder and harder to innovate. It's kind of maintaining this entrepreneurial spirit that we were talking about in the real estate here: How do you keep that going?

Russ Roberts: Yeah, very hard.

Joel Peterson: It is hard.

Russ Roberts: The other part that's hard is listening to customers. Because, airlines, a lot of things that go wrong in the airline business are not the fault of the airline. They are either God--like weather--or they are regulatory, or bad luck, or all kinds of things. But, of course, there are mistakes. And, as a result though, you get a lot of angry people who blame you for everything--I'm sure. And you probably have a lot of content people you never hear from. They just go about their business: Take their bag out of the rack and move on. How do you stay in touch with the consumer experience and get feedback from customers?

Joel Peterson: Well, we have a formal process where we get a kind of a net promoter score that we--I think most airlines are down 10%, 15% or whatever; we are up in the 60s or 70s, something like that. So, we actively monitor it. We respond to complaints, personally. I get complaints, directly. But, you know, the most gratifying part of this job for me, and the most surprising part, has been: I have more letters, way more letters thanking me for things and saying, 'Wow, I had this incredible experience. Here's the story.' And I think one of the things we do at JetBlue is something that I did at Crow many years, is collect hero stories. Part of developing a culture, a high-trust culture, is having these hero stories that say, 'Hey, this is what matters. Let's celebrate these things.' So, we get a lot of positive feedback from customers. It's surprising. Particularly in a commodity business--I mean, you almost have to consider the airline industry a commodity business. We all fly the same equipment between the same two locations. And, you know: How do you differentiate a commodity business? So, we've tried to do it with people, with smiles, with responsiveness, with caring about it. And I think we've done a pretty good job.


Russ Roberts: Let's move to your book. Since you mention trust--the book is called The 10 Laws of Trust. And let's start with what you mean by trust, because it means a variety of things to different people. For you, it's clearly a central issue in leadership and management. What does it mean to you?

Joel Peterson: So, to me it means sort of ceding control to another party without all of the safety nets that you might have in a contract, or the ways that you can punish people for not living up to whatever they promised to do. And we trust all the time. But, fundamentally, it's living your life in a way that both you can be trusted, that you are a trustworthy person, and it's figuring out how to work with others so that you can develop trust with them over time.

Russ Roberts: You have a lot of kids.

Joel Peterson: Yeah.

Russ Roberts: I've found, as a parent, ceding control is one of the biggest challenges of my personal life, and certainly the hardest part--perhaps the hardest part of being a parent is not running your children's lives. Have you found complementarity between your business experiences and your parenting? Or are those totally separate worlds for you that, for emotional and other reasons they don't mix?

Joel Peterson: Well, probably for emotional reasons you keep them separate. But, I've actually found that the fundamental principles of building high trust with people and metering out trust and measuring results and having accountability and whatever are the same. Human beings are human beings whether they are little people in your family or an EVP [Executive Vice President]. And it's surprising how many things are shared in common. People do what is measured. They pay attention to what is celebrated. Pounding people works in the short run and backfires in the long run. And that's with kids and with executives.

Russ Roberts: You said EVP--you mean Executive Vice President?

Joel Peterson: Yeah.

Russ Roberts: You might have an Executive Vice President that you groomed and watched climb through the ranks, and you're very proud of them; but the emotional involvement you have with your children is inevitably different. Do you find it harder to cede control to your children than you do to that Vice President? Or, does it go the other way?

Joel Peterson: I think it may go the other way. You're not going to fire your kids. You may fire that EVP. So, I think that part of the job of a parent is to appropriately cede control, at the right times, in the right ways, with the right accountability and lessons learned. You know, we've all made mistakes as young people. And I think--I was trained by my parents: when I made a mistake, they--in fact, I have an interesting story that I recount in the book--

Russ Roberts: Yeah, I hope you are going to tell that--

Joel Peterson: Yeah. My dad tossed me the keys to the car when I was maybe 14 or 15 years old, and I backed it out and jumped a curb and went down a little incline. And I had the car hung up. This is the first three minutes of driving. And I tried like crazy to get it back on the driveway and couldn't do it. My dad came back out, helped me; got a neighbor to help me get the car back up on the thing; I thought, 'Well, that's the end of driving for me.' And he tossed me the keys and said, 'Remember to put it in drive next time, Son,' and walked off. And, you know, I was not going to let him down. I mean, from that point in time, I was careful. And, [?] I knew he trusted me. So, he'd given me a little bit of rope; I'd hung myself; and he said, 'Okay, I hope you've learned this lesson. Now remember this.' And he walked off. And so, to me, that's kind of the model I've used--give a little bit, and give correction; and then, if the party continues to do it, then you withhold; but you've not given them the car out on the freeway the first day. So, that's kind of the principle, both with raising children and with giving authority to executives, I think.

Russ Roberts: So, I think about trust--one way I think about it is expectations. So, if I trust you, I expect that you are going to behave in a certain way. It might not always be a good way. But, it's reliable. I can trust you. Meaning: I know what you're about. And that allows me to plan accordingly. And, you know, Hayek talking about an economy and the interactions that we have with each other--there's a huge amount of that that makes an economy work--the fact that, I don't know what you like, I don't know what your demands are for various products. It doesn't matter. We're all making our own individual plans, and the fact that they can be woven together without a weaver, that they somehow work through the price system, is really a miracle. And, the example I use is, I can show up on a Sunday morning at the bakery and there's going to be fresh bread there. It's just going to be--it's reliable. Now, the other aspect of trust, though, is: Go and exploit me. And you talk about the vulnerability that's inevitable in trusting people. Talk about that, and how challenging that is. In any place, either business or parenting.

Joel Peterson: Yes. So, you lead an interesting distinction there between the kind of trust that is reliability, predictability. That may be the kind that we have with a Mafia Don. A Mafia Don is going to shoot us if we don't pay back our loan, or whatever. You know, so, there's a certain predictability and reliability that say, 'I can trust that this will happen.'

Russ Roberts: Yep.

Joel Peterson: The other thing you are talking about, though, I think is this idea that we have actually ceded, controlled--to some--we've expected a certain result from somebody, and they fail us. Now, there are different ways of failing, too. It may be through miscommunication. It may be through mistake. It may be through--or it may be through consciously saying, 'I'm going to take advantage of the fact that this person has looked the other way, to do something that's harmful to them.' And that's the one that I think is the most--which is betrayal.

Russ Roberts: Yeah.

Joel Peterson: And any time that you trust, in that way, you are exposed to betrayal. So, the whole issue, to me, is: How can you be smart about who you trust and how you trust? And, how do you build an organization that gets really good at making a bunch of smart bets, along the lines of trust? You are not going to make every one of them right. You are going to have to recover from some betrayals. But, all in all, you are in, you are out: You are going to be more innovative, more flexible; your decisions are going to be more durable, people are going to be happier, if you are ceding trust and holding people accountable, and doing it in this kind of metered way. That was a long answer.


Russ Roberts: That's all right. Let's talk--I want to dig a little deeper into betrayal. Because, really, there's two kinds. There's the, 'You didn't follow through, you didn't give best effort.' Then there's the kind where you stab me in the back. Right? You took credit for something I did. You covered up a mistake that's going to haunt me later. Those are the--that's a full range. And they're very different. And, I'm curious--I guess my first question is: You are obviously a skilled person. And I say that not from my not my very small personal knowledge of interacting with you, but the marketplace has decreed you to be a skilled person. Giving up control--and allowing that risk of the first kind of betrayal, which is just--you didn't do it right, you didn't get the job done: that's incredibly hard, isn't it?

Joel Peterson: It is hard--

Russ Roberts: Because you are probably often--you are saying to yourself: 'I wouldn't let that happen.'

Joel Peterson: Yup. No, you are vulnerable. When you redo that you are vulnerable to kind of the character--but in the book I talk about, you are vulnerable to the character of the other party: are they really a fiduciary? But you are also vulnerable to their competence. And, you are vulnerable to their authority: do they really have the ability to pull it off? Because, in the end, what you are looking for are results. You are expecting a certain result. And trust is built on results--on promises delivered. And it becomes a habit, in fact, if they reliably delivered. So, when somebody betrays that, then I think you realize your vulnerability, one; but you've got a decision to make. You've got to figure out what to do. And betrayal can actually--well, it can do a number of things. But, one thing it can do is make you just wary. And make you just do less things and trust fewer people, and whatever. I think that's the wrong response. I've been betrayed a couple of times in life, and, for a moment I paused, and I just said, 'My gosh, I can't ever do this again.' Or, 'I'm going to make sure this never happens again to me.' And then I finally decided, 'No, I've got to move forward and live a great life and overcome this thing, and get smarter.' That's why I talk about smart trust: just get smarter about trust. And then, I've just learned that, what you find in a lot of the religious texts, all over, are the power of forgiveness. And, the idea of moving on, and just consciously saying, 'I'm going to move on.' I think you can let that--and in fact I had a particular point in time when I had a publicist and I was talking about, 'Well, I'm going to write the book that exposes this,' and she said, 'Yeah.' It was so gratifying to me I could just hardly wait to do it. And she said, 'You know, the best thing to do is go on and have a great life. That will be the most powerful thing that you can do.' And she was absolutely right. Because, I couldn't move off a dime[?]. As long as I was thinking about it, I lived in the betrayal. It was so painful. My own advice is to say: Most times the best thing to do is just get away from the party. Don't try to repair. Give, and move on. Don't try to repair it. Sometimes the stakes are really high. For example, I always think of the case with children. Sometimes the stakes may be so high with children that you say, 'We're going to do everything we can to overcome this betrayal.' But, in most business circumstances, there's information in the betrayal that you should pay attention to, and just move on. There are lots of fish. I find even with senior executives or people you've worked with, there are a lot of people you can go to after that, and you don't need to feel like you have to repair that one and, you know, make it right again. You just forgive and move on, and, you know, you'll live a bigger and better life that way. And I realize that's a hard thing emotionally. But I think it is the smart thing to do.

Russ Roberts: I think this an incredible range of emotions when you are betrayed. I think there is anger. There is a desire for revenge. At the higher level there is, 'Maybe I really wasn't wronged and I probably need to look at this from another angle.' And then there is just, 'Put it down and move on.' And I think, the last two are the "right response," almost in every circumstance. We recently had Ryan Holiday here talking about revenge in his book, Conspiracy: Peter Thiel on Gawker. And he quoted--I want to say Marcus Aurelius--he says something like: If you are going to go get revenge, dig two graves. Because, you are going to damage yourself in the process. And yet, so often we have that, such a visceral--betrayal is, it's a very tough thing to put down. We have a number of young listeners, people in their 20s and 30s, who listen to EconTalk. Two questions I'd like you to answer for them. One is: How do you avoid that emotional reaction--which I think is inevitable. You are going to have that reaction. The question is: Do you act on it? And the second question is: If you don't want to be a betrayer and you want to be a person people trust, how do you establish any kind of reputation or trust, as a young person who doesn't have much of a track record?

Joel Peterson: Yeah. Well, the last one first is that I think you do small things really well. And you fix them immediately. I remember when the first assignments I had, I blew it on the numbers. I'd calculated the numbers; I'd given them to my boss. He went off and he made a deal on it. I took it home that night, saw my mistake, and in the next day I said, 'Oh, my gosh, I'm so sorry, but I made a mistake on this.' He said, 'I've already done a deal based on your numbers.' And I thought, 'Oh, my gosh. I've betrayed'--at some level, at the one kind of level--'I've betrayed him.' And so, what I said is, 'How do I make this right?' And so I think, as a young person, what I decided to make this [?] is, I called the guy with whom he'd done the deal. And I fell on my sword. And I said, 'You know what? I was the guy who made this mistake. The deal was done based on this set of numbers. Can we re-cut this element of the deal?' He did it. We've since become friends. We're 40-plus-year friends now. We've done hundreds of millions of transactions together. Based on that initial fumble, and then repairing it. So, I would say: Deliver in the small things, and fix them immediately if there's a problem. Now, your first question was--


Russ Roberts: How do you avoid giving in to that? Well, you are not going to avoid the feelings.

Joel Peterson: Yeah. So, I think the feelings are going to arise. We don't have much control over our emotions. We'd love to think we do, but they kind of well up, based on who knows what. So, I think you just say, 'This is what's going to happen,' and you anticipate this is the feeling. I learned early in my career to develop mantras: things that I would tell myself where I knew I had a problem. I developed three that changed my life, where I just said: You know what? I've got to correct this in my own, what I call my operating system. My natural way of approaching, analyzing problems, and making decisions. And so I would repeat these things to me, sometimes several times a day. You know? And they, actually over time, I corrected: the input would come in, and my response actually changed. My emotional response actually changed based on self-talk. So, in some ways, what I feel like I was able to do was develop my own operating system. It wasn't inherited genetically or through peers or parents, or--you know, a lot of people feel like, 'Well, this is how I am. This how I came. I have to do this. I feel this way.' And I basically decided I didn't want that to be the outcome. Because I could see my flaws, and I could see people I admired who were in places that I was not likely to go in life unless I fixed these things. So, I think that's one of the things you can do. And I think you have an opportunity when you are young to do that, because you are building a brand to live with you through your whole life. And there will only be a few times when people will allow you to do much brand-tweaking. So, I'd say, at a young age, figure out where your vulnerabilities are and develop the mantras that are going to allow you to rewrite your operating system. And then you'll have the feeling--it will well up. And you will say, 'I don't have to react to that feeling, because I know a better way.' And you then own the better way.

Russ Roberts: Yeah. My favorite example, that for me is: Hold your anger for a day. Which, when that anger wells up, when you write that email: Don't send it. Don't even write it. It's okay to write it if you don't send it. But, certainly don't send it until 24 hours has elapsed. And once 24 hours has elapsed, you're not angry any more. Fifty things have happened in the meanwhile. You don't have to take that revenge. Are you going to tell us your mantras? Or, are they too personal?

Joel Peterson: Yeah. No, it's not too personal at all. But it does reveal, I think, where I was weak. My problems. I think they're unique to each person. But, to me, my first one was: It's not about me. And I think I was at the center of my universe. I was the oldest of 5 kids, and the next oldest was a daughter who was 4 years younger. And I think I kind of reinforced that it was all about me. And, so, I just had to tell myself over and over, 'It's not about me.' It's funny that, when I was with Stan McChrystal, who joined our Board, I asked him how he managed JSOC [Joint Special Operations Command], with all these competing enterprises in times of stress, and he said he just had to remember, 'It's not about me. It's about the mission.' And I thought, 'Oh, my gosh, here's this general who is extraordinarily accomplished telling me the same thing. It was my first mantra. The second one was: I'm not my emotions. And that was to separate the stimulus-response.

Russ Roberts: Yep.

Joel Peterson: You know.

Russ Roberts: So hard. So [?].

Joel Peterson: But to me, it just was to always say--and it could be the thing that you just described--is: Go sleep on it. But, it really helped me to add some analytics in between. You know, to sit down with a piece of paper and say the pros and cons, and really try to think it through. And this idea--one of the ideas that I always had was: I've joint-ventured my problems. They are not somebody else's fault, entirely. You know, I've joint-ventured them. And, the third one was: I have all I need. And this one was a little bit, the panic that you feel as a really good student, when you've been given a group project. I always found that I did all the work, because I wanted to make sure we got the A.

Russ Roberts: Yah.

Joel Peterson: And, so I blamed--

Russ Roberts: I could have predicted that. Shocking.

Joel Peterson: So, people would drop in [?] assignment; I'd do it. So I always had an excuse. Things didn't turn out right. There was always a reason. So, I found that I was a little bit blaming--I held people to standards that were kind of unfair. And so, just saying to myself, 'I have all I need,' was a calming mantra to me. And so I found that my levels of anger, anxiety, and ego-centricity went way, way down. And I would say that that's one of the reasons that I was able to move on to the next level of mantras. You know. And so, it's kind of been a constant battle with my natural operating system. But, I think I've actually changed it. Fundamentally.

Russ Roberts: No, I think that's correct. As you get older, I think if you do it right, you can actually--those emotions don't arise as much to start with. For me, anyway. At least. Or maybe it's just age. I don't know what it is. But, maybe it's not the mantras. But, it's an interesting story, about your group projects. Because, you weren't much of a truster back in those days. So, you obviously had to learn--but that's consistent with what I was saying earlier. I think when you are a highly skilled person who cares a lot and ends up picking up the ball of necessarily people who drop it, it's very hard to then just hand people the ball. And obviously, you've learned--you've worked at that and gotten just a little bit better, I suspect.

Joel Peterson: I actually think it's one of the biggest problems my students at Stanford have. Because they've been individual, phenomenal individual performers. The biggest change that they'll have professionally is not being in control of the output. You know? And, it's a sea change in who you are and how you go about things. Some can let go. And others can't let go. And they drive people crazy. So, we all know people who we know are extraordinarily intelligent, competent; they can do everything; but they can't manage a team. They can't get team results. And my analogy that I use in the book is that a relay team can run the 400 faster than the fastest 400-runner. And so, you've got to understand the power of team. And you have to then let go. You have to pass the baton. And just rely on the other party. And over time, you are going to do better doing that than you will by holding on to everything. So, that image has helped me.


Russ Roberts: So, another way that I think people--certainly I have, and I suspect you have as well--deal with those kind of emotional reactions that you are worried about, over-reacting, is to look for a mentor. To look for what--Adam Smith talks about the impartial spectator, the person who doesn't have a stake in the game, who can observe your behavior. Smith uses it to describe the way we look at ourselves. But, I find, in my experience, that it's good to have an actual impartial spectator: that it's good to get a friend of mine with say--get counsel. You didn't mean legal counsel. You meant emotional counsel.

Joel Peterson: Yep.

Russ Roberts: Do you find that helpful, have you found it helpful? And, is that something you recommend?

Joel Peterson: Absolutely. I mean, I think, today, having a coach is almost de rigueur. If you are going to be a CEO, you should have a coach. And so, you can rent a coach. Or you can have somebody that you know personally. To have a mentor, I think is a gift. I mean, I will tell my students, 'If you can get a job where you feel like you have a real mentor, go work for free.' It is--you are being paid. I mean, it is so valuable. It's incredibly rare and incredibly valuable. But, you can't ask somebody to be your mentor. The mentor marketplace does not work that way.

Russ Roberts: That's a coach, where you hire one.

Joel Peterson: Yeah. You've got to do it that way. But, I've also found that you can borrow mentors that are historical figures. To me, one of the most powerful ones is Winston Churchill. I've read a lot of his stuff, and I've visited the Cabinet War Rooms, and I have his picture on my wall. There's a famous picture that Yousuf Karsh, Armenian/Canadian, took.

Russ Roberts: Yep, famous photograph.

Joel Peterson: Yeah. And so, I have the photo on my wall, where he grabbed the cigar from Churchill, and, glowering he, you can see his determination: 'Never, never, never, never give up, or give in.' So I have that on my wall to remind me. So, I consider him a kind of a mentor. You know. And, it's a mentor when times are tough. When the odds are against you. When you've got to fight 'em on the beaches, and on the landing strips.

Russ Roberts: It's interesting you mention him. I'm a big Churchill fan, also. And the War Rooms are one of my favorite--might be my favorite museum of the world. It's in the top 5 for me. At the same time, he was a terribly flawed person. And I would say that trust was one of his worst attributes. So, it's interesting--you know, he was not a good cede-er of control. He was a hands-on, stickin'-his-thumb-into-every-pie kind of guy.

Joel Peterson: Well, and a lot of stupid decisions--I mean, flying across the channel. I mean, he was deeply flawed at all kinds of levels. But, I use him as a mentor for perseverance.

Russ Roberts: That's an interesting example, right? You pick him for one that you think you need or that he's especially inspiring. Because, the other thing I wanted to ask you about is humility. Not one of Churchill's strong suits. And a good thing, in 1940, that it wasn't. The world, and Britain, needed him to be arrogant; and that was probably for the best. But when you told the story about going to the guy and saying, 'I messed up these numbers'--that story gives me goose bumps, actually. Because, I can empathize--I can put myself in your shoes. And I can't imagine making that phone call. And I'm curious if you remember how you came to think that that was a good idea. Because it could have--the likely outcome was the guy would have laughed at you. Literally. Laughed in your face, and said, 'Hey, a deal's a deal. Learn a lesson, kid. And hang up the phone.' How did you have the courage to do that? How did you have the humility to tell a relative stranger that you messed up? And, how important is humility, going forward for you?

Joel Peterson: Well, I think humility is really important. I view humility as sort of teachableness: You are willing to absorb knowledge from all kinds of places. And I really regard, one of the best ways you show respect to others is to listen. And to listen without agenda. And to absorb things. So, to me, I decided that I wanted a high-trust brand. And I was willing to kind of pay any price--fall on my sword or whatever. And I adjudged that person to be a decent human being who would like[?] to me. So, I think--I regard negotiations as serial, not episodic. And so, I said to myself, 'I'm going to have a lot of relationships with this guy over the years, and I want to start to build a high-trust relationship, where we'll adjust things.' And I've adjusted deals for him. In fact, when I left Crow, he was in a series of transactions that were troubled. And I took all them--in trading out assets, I took all of his troubled transactions and worked them out for him. And it was a reflection of a 40-year compact that we had made as human beings. And so, I really believe that you can--that smart trust with a small portion of the people--and I judge that he was one of those kinds of people. He happened to have my same first name. And so, there was this kind of an instant connection there. I have lots of Jewish friends, and I've always been attracted--he's a Jewish investor and I've always had a great affection for my Jewish friends. And, so, I just felt like there was a way that this was going to work out okay. And I'm a little bit fearless.

Russ Roberts: Well, you got lucky.

Joel Peterson: And I probably a little bit lucky. But I have been lucky a number of times.

Russ Roberts: But, you didn't tell your boss? Did you tell your boss you were going to do that?

Joel Peterson: No. No. I mean, I probably could have. But I didn't. I just figured, 'Shoot, I've got to fix this.'

Russ Roberts: Intense.


Russ Roberts: Now, a lot of what you say in the book, and what you've said in our conversation, is what I would call self-interested. You are basically saying to be trustworthy is in your own interest: Not to exploit people in your own interest. It should be easy. And, I think--you know--I think it's ironic. I think most people business is about--tragically, too many people think business is about exploiting people. It's a very bad way to think about making money. You can think about making money in the short run if you are lucky. But, it's a non-existent long-run strategy, and you get punished relentlessly. So, one argument says: Being good is it's own reward. But it's also: you are going to be rewarded by the marketplace. You spent a lot of time with MBAs [Masters of Business Administration], and you tell them things like you're telling me. But, we also--an MBA education these days, there's a lot of emphasis on ethics. Do you think that ethics can be taught? Certainly, you can try to convince people that having integrity is in their own self-interest. But, to get people to make a sacrifice, a little bit harder. Right? And, to give up money, to forgo a deal that is, say, unethical or where you had an unfair edge--very difficult to do. And I feel in so many places in America, 'Well, of course you shouldn't give up that deal. You are playing by the rules.' But, some rules are corrupt. Some rules shouldn't be exploited. And certainly some people shouldn't be exploited. What are your thoughts on ethics, these days, in business curriculum and in business in general?

Joel Peterson: So, I think it's a good idea to teach the frameworks. There are frameworks and ways to think about ethics, and there are cases where people have ethical dilemmas, and you understand the tradeoff. You know, I went to a summary of papers by academics on it, and it was basically altruism was, they equated that with ethics. And I went up to them with a business dilemma where I said, 'Look, here's a case where it's 51-49: People are going to get hurt on either side.' I said, 'Most of the ethical dilemmas I've had in life are really dilemmas. They're tough calls.' And they had no answer for it. So, I think it is a good idea to--I would say that my belief is that everyone is self-interested. And, I think it's ridiculous not to think that people have no self-interest. I do think there's a difference between raw self-interest--you know, just short term--and enlightened self-interest. Enlightened self-interest is an all-things-considered look at things: You have a brand, you have a relationship. If you regard negotiations as serial, you say, 'Every time I have a negotiation, I am going to run into the same person, maybe 20 years down the road through his son-in-law,' you have a brand. So, I have what I consider an enlightened self-interest about that. I think it is in my interest because I am building a high-trust brand. So, to me, that's the smart way to think about it. And, not to expect people to be altruistic. I will tell you--you know, this hurricane that we just had in Puerto Rico--I was so proud of how JetBlue responded, because a lot of the other--and I won't name anybody, but they went in and they took advantage of photo ops [photo opportunities], and they charged people high prices to get in and out and whatever. And we did the opposite. We flew planes in with generators and water bottles. We didn't have any Press with this. It was not a PR [Public Relations] opportunity. And yet, what I think we've done is built a deep, high trust relationship with the entire island of Puerto Rico. So, I think it's smart. It's self-interested; but I think a lot of people are just so short-term. And we're trained, of course, in the business world, with quarterly earnings being measured--people are trained to make short-term bets. So, I think that's unfortunate.

Russ Roberts: You hear that. And, of course, if you listen to it--if you listen to that short-term siren, you are going to hurt your long-term value.

Joel Peterson: I think so.

Russ Roberts: And obviously, not every time, not every place, not every company.


Russ Roberts: So, let's close with the following question. You've been in the business world for a long time, at a very high level. And, I worry, for reasons that--let's not try to explain--but I worry that our business culture has changed in America, as well as our personal culture, over the last, say, 30, 40 years. Is that just me just getting older and getting pessimistic? Or, do you think--of course, you're getting older, more pessimistic, too, Joel--

Joel Peterson: Right--

Russ Roberts: so it's hard to control for that. But what I'm curious is: In your experience, do you feel that the day-to-day levels of trust have changed?

Joel Peterson: Yes--

Russ Roberts: or, do you think it's a constant?

Joel Peterson: No. I think that they've clearly gone down. I mean, I think if you look at sort of the Millennials, about whom a lot has been written, they are wary. And why not? They were told to go to college; and now they've just got a bunch of debts and they are living in their parents' basements. They were told to buy a house: it would be a great investment. And they've seen neighbors lose their houses. There are a lot of things that they were told. And then they get all their information from Twitter and Facebook and YouTube and whatever, so these short-term, questionably-reliable sources. So, I think--

Russ Roberts: Me, too, Joel, by the way.

Joel Peterson: Yeah. No. We live in this fast-paced world where we are kind of forced into it--but I think deeply that we all know that trust has this bedrock nature to it. And real trust builds slowly. Kind of a conversation, a moment of truth, a promise delivered at a time. And it can be strained through misunderstanding, miscommunication, failures[?]. We understand we have this fragile, on the one hand, element. But really important and critical on the other. Howard Schultz--I always like to think about his statement--he said something like--

Russ Roberts: Founder of Starbucks--

Joel Peterson: Yeah, and Starbucks, yeah. When he first introduced Starbucks in the 1960s said, 'If you introduced a new product, 90% of the people who looked at it would believe whatever you said about it. But, today, if you do the same thing, less than 10% of the public will believe whatever you tell them.' So, there's been a general wariness; and I think we've been fooled enough by advertising, by politicians, by business leaders--I mean, look what happened at Enron, or Worldcom, or with Bernie Madoff, or whatever: we all have these experiences now. So I think trust levels have gone down. Which makes it all the more precious, and all the more valuable to understand its bedrock nature. And if you don't violate it, and if you fix things quickly, you can have a competitive advantage. That, by the way, is in your self-interest.