As the financial crisis went from bad to worse last week, policymakers and business executives fussed and fretted over the drying up of credit around the world. The bigger problem, though, is a severe shortage of something else entirely: leadership. Peter Drucker--who began writing on the topic in the 1940s, long before it became fashionable--considered true leaders those who bring accountability, consistency, and a sharp sense of what must be accomplished to all they do. When it comes to the current mess, those in charge on Wall Street and in Washington have failed to deliver on all three fronts.

Most appalling, perhaps, were the performances on Capitol Hill by the former heads of Lehman Brothers and American International Group, who blamed devious short-sellers, unpredictable regulators, and careless colleagues for their firms' woes--just about everybody, that is, but themselves. "Looking back on my time as CEO," Robert Willumstad, AIG's former chief, told a House oversight committee, "I don't believe AIG could have done anything differently."

The Height of Prudence?

Richard Fuld, who presided over the downfall of Lehman, told the panel that all of his decisions "were both prudent and appropriate" given the information he had at the time. Yet if this is true, it indicates that his organization was ill-equipped to get him the information he required--a horrendous management breakdown in and of itself.

"Harry Truman's folksy 'The buck stops here' is still as good a definition as any" of leadership, Drucker wrote in his 1967 classic, The Effective Executive. Willumstad and Fuld made a mockery of the buck-stops-here standard.

Meantime, public officials haven't displayed many exemplary leadership qualities, either. "The leader's first task is to be the trumpet that sounds a clear sound," Drucker wrote. "Effective leadership--and again this is very old wisdom--is not based on being clever; it is based primarily on being consistent."

But clarity and consistency have been largely absent from the government's response to the crisis. At first, the Bush Administration had an awful time explaining why its $700-billion rescue plan wasn't simply a taxpayer-funded bailout for the companies responsible for the disaster. And all along, the Administration's efforts have seemed haphazard and uncertain, as if it isn't exactly sure what notes on the trumpet it should try to play. At one point, for example, Treasury officials belittled the idea of the government taking an ownership stake in the nation's banks. Then they reversed course and announced Tuesday that they'd invest $250 billion in the sector.

Their action helped spur a stock-market rally after shares were completely battered last week. But it remains to be seen whether the government's plan is even focused on the right things. It's quite possible, after all, that it could succeed in shoring up the banking system in the short term while neglecting to ensure that another financial meltdown doesn't materialize down the line.

One of the most serious issues that hasn't been adequately addressed, for instance, is mandating that financial institutions divulge precisely what kinds of risks they face today and going forward.

"There have been lots of halfhearted attempts at improving this over the years, most of them driven by big credit or trading losses, concerns about systemic stability or damage to clients," Merrill Lynch veteran Erik Banks wrote in his disturbingly prescient 2004 book The Failure of Wall Street: "Something bad happens, regulators ask for more risk information, banks produce it for a while, no one finds it particularly useful because it is couched in such oblique terms that nothing is actually conveyed, and then it gets buried in unreadable form in the financial statement footnotes; regulators, clients, and investors forget about it, and it's back to the status quo till the next blowup."

This time, we must do better--but that calls for leaders who have the courage to treat not only the current calamity but also its underlying causes, including a lack of transparency.

Expanding the Boundaries

Indeed, the way Drucker saw it, one of a leader's most important jobs is to frame carefully what he or she hopes to accomplish with every major decision. "What are the objectives the decision has to reach?" Drucker wrote. "What are the minimum goals it has to attain? What are the conditions it has to satisfy?"

Drucker pointed out that in science, these are known as "boundary conditions." And falling short of them can be dire. "A decision that does not satisfy the boundary conditions," Drucker asserted, "is worse than one which wrongly defines the problem."

He recounted that President Roosevelt expanded his own boundary conditions after the "sudden economic collapse" between the summer of 1932 and the spring of 1933. Earlier, Roosevelt had pursued a relatively conservative policy of economic recovery. But when the situation deteriorated, his goal necessarily became not just recovery but comprehensive reform.

It is a path we'd be wise to walk again. The question is, will anyone provide the leadership to take us there?