Interview with Professor Niall Ferguson

It's no coincidence that we often use historical or political language to describe businesses.

Ultimately, figuring out what went wrong with Enron is as much an historical challenge as a legal or financial challenge, and the issues that are raised are absolutely central to what the study and discipline of history are about.

You have to deal with extremely patchy, sometimes unreliable, written evidence and conflicting versions of events. So, you have to try to extract from, say, the available numbers, some sense of how business or government operated.

I think history is a pretty indispensable business skill. It's not as if economics, as a highly and increasingly quantitative discipline, can supply these skills. It can't. You have to see an ability to think historically as an integral part of, not only a good general education, but also of a good business education.

Even looking back over the last year and saying, "What did we do right and what did we do wrong?" is an historical exercise. You are asking yourself about your own and your own company's history, and the further back you go, finding out what you did right (and wrong) becomes more historically challenging.

My recent work has been concerned with military and political leadership as much as business leadership. I don't think they are identical. For one thing, leadership in the political sphere (and even more in the military sphere) is leadership of monopolistic, not competitive, entities.

Obviously, war is not like competition in the marketplace. That's why, when we use analogies from the realm of the military, we can often get confused.

One critical point is that absolute, untrammelled leadership tends to be dysfunctional at a certain point, because we're all fallible. When you look at the history of the 20th century, one problem that is clear is that the extraordinarily forceful personalities in charge of grand strategy in the Soviet Union and in Germany allowed their errors to go unchecked with catastrophic consequences.

Churchill, too, if he had been an absolutely powerful ruler, would have made catastrophic mistakes. The difference was that he was consistently restrained by the institutional set-up in Britain. The Chief of the Imperial General Staff, Alan Brooke (a very brilliant man) could overrule Churchill when he proposed what Brooke considered a strategically erratic decision.

Much as it's tempting to idolise Churchill, the important thing about Churchill is not that he was an infallible leader, but that he was a restrained leader and didn't have untrammelled power.

What is important about leadership in the modern corporation is precisely the constraints that exist upon it, whether they are constraints imposed by regulators, by shareholders, by other executives, or by the law.

There is a sense in which we are tempted to fetishise the individual, to indulge in the notion of quasi-imperial characteristics. In doing that, we underestimate the rules and institutions that allow leadership to be successful — because they seem boring.

Pure leadership, the untrammelled charismatic leader, unrestrained by criticism or rules, unrestrained by any kind of institutional formalities, produces 1945 Germany. Hitler commits suicide in the bunker with his entire country having been levelled. And I think we kid ourselves if we think that any businessman today, running any major corporation, has anything remotely like dictatorial power. I mean, there are some business dictators, but I don't think they're the successful ones.

Luck is important in the sense that there's a lot of randomness out there. There are many, many things at work that do not admit of prediction, although we give ourselves the illusion that we can predict them.

We have forecasts and we have all sorts of elaborate devices designed to predict where exchange rates will be and who will be the next president, but the truth is that we don't know. There's enormous uncertainty involved, particularly in economic life, though it's true in every sphere of life. So, luck is about not getting whacked by some low-probability, high-impact event that takes you out.

Leaders who understand that the world is like that are the best leaders. Leaders who think that they have destiny on their side, and that they are lucky, are the ones who fall foul of a sudden market burst of volatility. They're the bad leaders.

The good leaders are the ones that realise (a) I'm fallible, and (b) the world is chaotic. And if you have those two insights, then you say (c) I need to be constrained and (d) I need to insure against the fat tail events, I need to insure against the low probability but disastrous event that could kill my business. I'm as vulnerable to going bust as anybody who ever set up a firm and failed, and nobody is too big to fail.

And I think insecurity is, therefore, a very important part of being a good leader. You have to be aware of your vulnerability and be aware that if you don't work your socks off, concentrate on all the possible scenarios, including the worst-case scenario, you could go down.

Self-belief seems to play a part in all these stories of successful leadership. At some point you need to take a decision. I mean, you're given three possibilities and no matter how much you agonise about them, there's no empirical way of saying which will be the right one.

At that point, you need to have some kind of intuitive sense of which one to choose, but, more importantly, then you need to really have conviction that it's the right one, because overt self-doubt can be fatal. Put it this way, once you've made a decision, it's extremely important to follow through. If you have doubts, they may be best kept private.

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• I agree wholeheartedly with this posting and specifically with Professor Ferguson's comments. On my own blog (www.intelligentmergers.com) and in my recent book ('Intelligent M&A: Navigating the Mergers and Acquisitions Minefield', published last month by John Wiley), I have commented on the parallels between certain military campaigns and some business deals. I note that Professor Ferguson cautions that the use of military analogies is perhaps overdone in some business circles. Yet we must never forget that human nature doesn't change rapidly, and we can learn a lot from the past while operating in the present and anticipating the future.

  Scott Moeller, London