Brilliant leaders need to be tough – tough enough to take decisions that can be very painful for others and embarrassing for themselves. If the decisions are correct for the business and the shareholders, pain and embarrassment are just burdens to be carried.

In World War II Major-General Orde Wingate decreed that if any of his special forces operating in the jungle far behind Japanese lines were injured, they were to be left behind.

As the Japanese were not renowned for their generosity of spirit to POWs, this could be described as a hard decision (which was, in typical British style, largely ignored!) – one that we as businessmen today fortunately do not have to make.

Nevertheless, one of the key tests of any business leader is his or her ability to make decisions that are brave but necessary.

Admit your failures
Probably top of my list in toughness is reversing a previous decision you have made. I emphasise YOU have made, because reversing other people’s decisions, particularly as part of an incoming management team, is much easier and in many cases is an expected consequence of management change. A fundamental change of strategy that can be blamed on someone else is all part of what we euphemistically called ‘kitchen sink’ accounting.

No, it is when you cannot blame someone else that it really becomes difficult.

Let’s take Manganese Bronze, the people who make London black cabs. They ploughed nearly £15 million into a computer-based booking system called Zingo. Last week they sold it for £1. A hard decision, particularly if you had authorised it to start with, but unquestionably the right one.

Contrast this with Cable & Wireless, who spent a fortune on their loss-making internet hub and backbone while neglecting their business cash cows in the Caribbean. In this case the COO did not admit his failure and it took a change of management to sell it for next to nothing.

Change your business model
This also takes courage, particularly as it invariably means changing people and, in many cases, deep cuts in employment. It also costs money that companies who have to take radical steps often can’t really afford – or so you tell yourself.

But the reality is that in some cases a ‘quick death is better than a thousand cuts’ as I managed to convince one of my management teams.

The team was quoting on a small number of deals, between £200,000 and £300,000, and in most cases losing. The competition played hard on the fact the business was smaller and not particularly financially secure.

But here comes the conundrum. Overheads were nearly £200,000 per month and if the company did not do big deals it just couldn’t cover the overheads. A classic catch 22.

So we cut overheads to £100,000 per month and concentrated on £25,000 to £50,000 deals – lots of them and where telemarketing was particularly effective.

We were just in the nick of time; money was perilously low, but within six months the company was transformed and it has never looked back.

Do the right thing
Another great true story is James Crosby at HBOS. HBOS’ back mortgage book contained a large number of fixed-price loans at high interest rates as a result of rapidly falling interest rates. The management could have done nothing of course and just raked in the profits but this was against HBOS’ image of being consumer-friendly and competition in the marketplace.

So the whole of the back book was repriced – a hard decision but one which no doubt maintained the company’s position as the number one mortgage lender in the UK.

Be tough in wage negotiation
I remember once being on a plane (Concorde, if you will allow me to show off!) and the man next to me was recounting his mountaineering exploits, which included climbing Mt Everest. I asked him what his most frightening experience was and surprisingly he told me it was facing a striking union. He had spent two months trying to do a deal, but the union was extremely militant so he had to say no and face the consequences. I think in the end he got a deal he could live with but not before he was brave enough to go to the brink.

Don’t take to the law courts
I remember one of my companies had a cast iron (or so we thought) contract with a major retailer on a loyalty card scheme. One of our employees left and, mysteriously, the contract was broken.

Straightforward you would say; sue them for all they are worth! But life isn’t that simple; the contract was not well drafted and we could not really prove the link between the employee and the lost contract.

So a brave decision was made. Forget it, don’t sue and just get on with building the business – which they did very successfully.

But this was a very hard thing to do, particularly as there was a lot of bitterness between the employee who left and the managing director.

Friends or not
Last but not least, probably the most difficult one of all. How do you get rid of friends and colleagues who are just not up to the job? This is really tough but sometimes you just have to bite the bullet, be more generous than their performance has warranted – and let them go.

Michael Jackson is chairman of Elderstreet Investments, the leading technology venture capitalist which he founded in 1990. He is also chairman of Sage, the FTSE-100 accounting software group which he has been closely involved with for the last 20 years, since its unquoted days. Michael is an entrepreneur and legendary investor in his own right.