If the financial sector is to recover from the economic downturn, its leaders need to sharpen up their act

The past few months have seen significant problems in the global financial sector. The sub-prime mortgage fiasco in the US has had knock-on effects around the world, particularly in the UK and mainland Europe. Some commentators blame the turbulence on globalisation issues and political instability, but the real issue is that those who hold positions of responsibility need to be better at what they do. Failure to do so will result in more financial crises over the next months and years. And the real victims of these crises will be those whose mortgage payments will increase, whose investments and pension funds will dwindle in value, and whose taxes will rise.

In the past 20 years, we have seen an explosion in the number of centres for leadership studies around the world, particularly in the UK. But it is not the gathering and assembling of knowledge that is needed—it is the application of that knowledge, particularly within the financial sector. Like all business sectors, financial institutions are facing significant challenges in the way they operate. We need leaders who are competent and able to take on these challenges.

Globalisation and the internet mean we have customers and competitors throughout the world. So the first leadership issue is to realise that we cannot be complacent about the way we do business. The political, social, technological and economic landscape is constantly changing, and leaders need to be aware of those changes. Most organisational leaders in the financial sector spend little time upgrading and developing their skills, but anyone in a professional context needs to be constantly improving the way they do things. Would you expose your body to the knife of a surgeon who had not upgraded his technique in the past decade?

The second challenge is to realise that it is getting more difficult to survive in the business world, due to increasing complexity, regulation and the risk of litigation. While it is almost always possible to present financial data in a positive light, the danger is that we lose sight of reality by massaging the figures. Enron, WorldCom, Arthur Andersen and Northern Rock, among others, have found this out to their cost, affecting millions of people around the world. We need leaders who, as former General Electric CEO Jack Welch once said, face reality as it is, not as they would wish it to be.

The third issue is that we are seeing a problem of morale in many financial organisations, particularly in the high-street banking and building society sector. The collapse of Northern Rock has shaken many people. To what extent former CEO Adam Applegarth and the board of Northern Rock are responsible for the situation is open to debate, but the impact on the bank's staff, customers and suppliers—as well as the general public—must not be underestimated. People who are well led handle pressure more effectively, work better in high-risk situations and add more value to their organisation than those who are poorly led. We need leaders who can inspire their people to hang in there during difficult times. Sir Richard Branson is a leader who has done exactly that—although not all his projects are a success, the overall impact on public confidence is consistently positive.

The fourth issue is that the general public is getting increasingly suspicious of the ethics and working practices of many large organisations, particularly in the financial world. While not every financial organisation harbours rogue traders, there is a feeling that the financial sector sees itself as less accountable to its customers that other sectors. In particular, the recent furore over bank charges has caused outrage among people who have discovered that they have been paying over the odds for unauthorised overdraft charges. What's more, many consider the time it takes for transactions to complete and for cheques to clear to be excessive in this age of instant communication.

Thanks to the cult of personality, we have a tendency to judge leaders on their personal qualities, rather than assessing their actual leadership performance. But not all leadership icons turn out to be squeaky clean in the way they do business. It is what leaders actually do that is important—in particular, the impact they have on those they lead.

General Sir Richard Dannatt, the head of the British Army, has talked openly about the situations facing our troops in Iraq and Afghanistan. He shows a genuine grasp of the global situation, is aware of where things are heading, has enormous consideration for his troops—and hence enjoys their loyalty—and is almost certainly better trusted by the public than any politician. Leaders in the financial sector could do well to learn from the military, which over the centuries has developed outstanding leaders, who perform well in troubled times.

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