Inspiring trust is critical. People are not willing to recognize someone as their leader unless they trust them, not just intellectually, but ethically and morally as well. Likewise, people won't follow someone unless they're convinced that person knows where they're going.
Leading by example is terrific, but it's not the be all and end all. Employees aren't dumb. They can recognize effective activity versus meaningless busyness.
A true leader doesn't just inspire trust, he or she returns the favor, trusting those who follow. To lead effectively, you must overcome your fear of losing control and allow others to step in. When an employee sees the boss has confidence in him, he becomes more willing to accept responsibility, therefore making a greater contribution to the organization.
Ironically enough, true leaders understand that their business requires more than one leader; someone other than themselves. They know that, ideally, every employee within an organization should take the lead in some situations. And--here's the kicker--true leaders assume responsibility for training and guiding their followers into leadership roles.
More importantly, regardless of what your leadership style is, it can work, providing you employ people who are comfortable with it. And, of course, who trust you.
Alexander the Great, the king of Macedonia, was one of the most superb leaders of all time. He became king at the age of 19, when his father, Philip II, was assassinated. In the next 11 years, he conquered much of the known world, leading his armies against numerically superior forces.
Yet, when he was at the height of his power, the master of the known world, the greatest ruler in history to that date, he would still draw his sword at the beginning of a battle and lead his men forward into the conflict. He insisted on leading by example. Alexander felt that he could not ask his men to risk their lives unless he was willing to demonstrate by his actions that he had complete confidence in the outcome.
The sight of Alexander charging forward so excited and motivated his soldiers that no force on earth could stand before them.
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