by Margaret Heffernan - Thursday, 6th September 2007 -

Leadership, it seems, is all the rage these days.

Wander into the business section of any bookstore, and you'll see the books piled high: The Leadership Advantage, Authentic Leadership, Leading Change, Developing the Leader in You.

Whether or not leadership is well understood, its impact on the bottom line is dramatic.

According to a study by Andersen Consulting’s Institute for Strategic Change, the stock price of companies perceived as being well led grew 900 percent over a 10-year period, compared to just 74 percent growth in companies perceived to lack good leadership.

Regular round-ups of most admired companies identify leadership as the common factor in success.

While the truth is that a whole concatenation of factors produces outstanding results, when forced to pick one, most people opt for leadership.

In Warren Buffett’s phrase, “People are voting for the artist and not the painting.”

This is all well and good but what does it mean in action?

Once we’ve understood and accepted that leadership is what all organisations need, that it should be legal, decent and authentic, and that it is better done by good people than bad ones, what is it that leaders are supposed to do?

The question came to mind the other day as I sat in a board meeting. For some time, I’d had concerns that certain budget numbers were being made up.

Of course, to some degree, many budget numbers are made up, to the extent that they are best guesses, not known certainties.

Budget numbers are only as good as the assumptions that underpin them, and the best budgets are based on experience.

But the speed of change in a growing business means that we all rely more on assumptions and less on tested experience.

In this case, though, one budget line was consistently wrong. That’s okay too, at first. But budgets should get more sure footed as leaders learn from their mistakes.

This one didn’t seem to do that. It was the budget line that many organisations have: the one that’s so nebulous it’s ultimately determined by any shortfall in the bottom line.

The makeweight item. The get-out-of-jail-free card.

So I started to press on this item. With emphatic sulkiness, I was told that of course solid planning underlay the numbers, that, no, they weren’t just made up.

With each month that passed, the detail failed to emerge and the numbers started to look less and less plausible.

More worrying still, with each passing month, our room for manoeuvre shrank. Until, at last, the inevitable, grim discussion could be put off no longer. The make weight wasn’t going to make its weight after all.

What looked a sure thing had turned out disappointing. But making budget cuts at this stage would wreck the business.

I hadn’t really got mad till now. I’ve drawn up enough budgets to appreciate that even the most conservative assumptions can be proved wrong.

Making mistakes is how we all learn. But what infuriated me was what the company’s leaders hadn’t done: they hadn’t spotted the problem, and they hadn’t devised a single solution to it.

Forced to confront a growing deficit and exploded overdraft, they just rejected out of hand all suggestions of remedy.

Running a business entails a lot of work that’s fun. Vision, invention, innovation. Putting processes in place that lighten everyone’s load.

Winning at negotiations and seizing new opportunities. That’s the fun part of leadership. And it’s a big part of the job.

But the other part involves constantly surveying the horizon to spot problems while you can still do something about them and then solving them.

This is a lot less sexy. It involves making pessimistic forecasts and considering the repercussions before you need to.

Staring into the abyss, usually alone, just to check that there is a way out. Having the nerve to ask the hard “what if” questions and the intellectual fibre to craft answers.

I know this isn’t easy. I remember running one company and gradually coming to the realisation that it had the wrong CEO â“ me.

However much my investors and employers loved me, the business now required different skills and experience.

I found that experience, hired it and fired myself. A few years later, running a different business, I identified a positioning problem which meant redesigning, in 90 days, everything we did.

Maybe one reason why most new businesses fail is because none of us much likes this grim face of leadership.

We’d rather enjoy the reassurance of day to day operations than examine scary unknowns. But it is your job.