Sarah Stuart: How to exercise excellent business judgement

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One of New Zealand's most successful company owners - who shall, alas, remain anonymous - uses psychometric testing on potential employees, despite the fact it's anathema to the tests' many detractors.

The reason, Dr Lester Levy explained in one of his recent MBA classes at the University of Auckland Business School, is not because she thinks they work. She wants to know a person's IQ.

The higher it is, the less likely they'll be hired.

You don't have to be ultra-smart to be a good leader, he explained in a Saturday session on judgment last week. Sometimes the most intelligent executive in the room might let their thinking get in the way.

But judgment - "the essence of effective leadership" - is required. And the good news is: just about anyone can learn how to exercise it better.

It's apt, perhaps, that judgment means both a "considered decision" and "divine punishment" in the Oxford. Bad judgment has sunk many companies, leaders and reputations and it's not only God who will damn them for that. Public opinion will probably get there quicker.

Bad judgment is easy: it involves reading the situation or environment incorrectly, being stuck in an old paradigm, engaging the wrong people in the process and being too dogmatic as you make the judgment call. Leaders will often then remove themselves from the follow-through and when there is resistance within the organisation and little way to deal with the changes their call has created, they'll fail to learn from it.

Good judgment calls are a process, he said, not an event. And they fit three distinct phases: Preparation; the Call Phase and Execution. Get one part wrong in the process and there's room to go back and redo things.

Preparation is being able to look for the early signs that things are changing. "The ice melts at the edges," Levy said. There's no point being at the centre of power and not knowing what's going on at the peripherals of your industry or organisation. Once you've sensed it, make meaning of it. Name or frame the issue. "Don't solve something you are not sure of," he said. The language you use in this phase should be carefully chosen, and used throughout the process.

Communication is critical in the Call phase. This is where you engage your people, tap the best ideas from anywhere and, once you've chosen your yes or no judgment, it is critical that you explain it in short, clear terms.

Execution is what happens after that. The leader must stay in the process, set the milestones, support those who are making it happen and make adjustments based on feedback. That part is continuous: "an active process of learning and distributing that learning".

Good judgment takes time. And, like everything in leadership, a lot of self-awareness. It is not gut instinct. Or necessarily a quick decision. "Own your judgment," said Levy. "And always explain it yourself. Don't let anyone else explain it for you."

Which all sounds a bit more tricky - though achievable - than a nicely inherited and well-bred IQ. "The measure of success is the sum of all our judgment calls," Levy said. Time, perhaps, to put a little more effort into them.