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It's not difficult to see why General Sir Mike Jackson was once in control of the British army. He has a booming voice, the glower of someone who will brook no disobedience of compromise, and more wrinkles than a champion bloodhound - the telltale signs of wisdom and experience. His address to the London Business Forum marked the publication of his autobiography, Soldier, but it also came in the same week that he and several other grandees of the British military savaged the government for underfunding the Ministry of Defence. Even in retirement, it seems, he's still fighting.

In the Q&A session following his speech, Jackson described the armed forces as "heading for a bit of a crisis". But the event began with the topic of leadership, which he described as "an art rather more than it's a science".

As a capability, leadership is "to a considerable extent innate," he argued, "but it can be brought out, it can be trained, and you can [develop it] further by experience." As a practice, it boils down to deciding on an objective, planning how to achieve that objective and then implementing the plan. The first of these two elements take brains, he said, but the third takes character, and so ultimately it's the character of a leader that will determine whether they succeed or fail.

Whether you're in the military or in business, you must be good at building mutual trust between yourself and subordinates - empowering them to take initiative. This applies to teams of any size, he said. "In the army we go from a four-man fire team, commanded by a lance corporal, to the complete army commanded by the chief of general staff, but anywhere within that, the sense of team is absolutely essential to getting the whole group moving together with a sense of common purpose."

You must also be able to recognise success, without becoming too reliant on performance indicators, which can lead to "behaviour patterns you didn't intend" (and this, Jackson scoffed, involves clarifying your objectives in a way that most corporate vision statements don't). People tend to get too comfortable with processes, he argued, and as a result they become less comfortable with outcomes, in case their preferred course of action might prove wrong or late or unacceptable in some other way. "I fear this is something the public sector needs to be more concerned about than the private sector," he said, but "[as corporate leaders,] you still need to make sure that people are always thinking of the end-game, not just getting bogged down in 'getting there', because that process is not the purpose of the exercise."

Furthermore, you need the courage to admit your mistakes, because if you try to bluff your way through something then the people you manage (or command) will see straight through it and lose respect for you. "Every young officer at some point will get spectacularly lost, probably with 30 soldiers behind him, and it's four o'clock in the morning, it's cold, it's wet, he knows he's lost, his soldiers know he's lost, and he knows that the soldiers know he's lost." The mark of his character in this situation is whether he tries to bluster through or admits to his mistake, learns from it and strengthens the bond with his men as a result.

"Don't live in an ivory tower," Jackson advised. No matter what type of organisation you run, you cannot lead by isolating yourself in your office. "It's very important to get out," he said, "so you know your people and they know you and you have a proper interchange." Moreover, when you get to see what your staff are doing, it's important to "be more keen on praise than on blame," because "human beings respond to praise in a quite extraordinary way, and you get more out of them."

The key thing is to show complete integrity in the way you reward good performance and punish failure. You have to assert your authority without posturing. "Anybody who tries to act a part - to be something they're not - probably won't work in the long term or indeed even in the short term," he suggested. "Other members [of staff] will see through such an approach and they won't like it very much. Its very important to be yourself." With this in mind, it helps to have a good sense of humour, because then, "even when things are not going too well, you can defuse and change [the situation]."

Ultimately, leaders have to persuade staff that change - even if highly unwelcome - is absolutely necessary for the good of the organisation as a whole. "Human beings are conservative by nature," he said. "We all get into our comfort zone. The routine, the predictable, the certainty is what we like. But if, for example, the army had taken that view, we'd still be in red tunics with muskets, fighting in squares, as Wellington's army did at Waterloo."

One of the key problems with today's business culture, he argued, is that we think it is possible to eliminate risks when it is only ever possible to minimise them. "Risk-elimination, in an uncertain world populated by fallible human beings, is simply not on offer," he said. "And this is particularly true in the military environment. Some commentators appear to think risk-free military operations are quite possible. Well, of course, that's nonsensical, because some other bugger is trying to stop you doing what you want to do in a rather unpleasant way." A good leader doesn't avoid taking risks, he emphasised. Rather, they know when to take risks and when to avoid them altogether, through "a proper balancing of risk versus achievement."

Its therefore a shame, he growled, that the government seems unwilling to modernise the armed forces. "The public-sector settlement of two months ago was a 1.5% real increase annually for defence over the next three years," he explained. But this was measured against general inflation, when it should have been measured against defence inflation, which "runs historically at seven or eight per cent," owing to the monopolistic nature of the defence industry, particularly in equipment manufacturing. "So, your 1.5% real is probably a flat line at best."

Is this going to be enough to equip us adequately for the challenges we face in 15-20 years. Jackson's view was emphatic: "It almost certainly isn't."

The strategic situation faced by our armed forces is fundamentally different from the one they faced only a few decades ago, he pointed out. "It's under 20 years since the Berlin Wall came down in that spectacular fashion and the Cold War ended,

and it's under one decade since those extraordinary, appalling and obscene attacks took place on New York and Washington. But these two events marked two quite fundamental changes in strategic circumstances." Basically, he argued, we've moved from a world that had a clear balance of power to one that is turbulent and unpredictable, characterised by "asymmetric warfare" between terrorists and states. "And I can't stand in front of you and with any honesty say I predict a more certain or safer future, because I don't see the evidence for it."

What characterises today's chief conflicts, and what will characterise the conflicts of the future, he suggested, was not "who sits on what bit of terrain" but "the battle for values, for identity." The perpetrators of the 9/11 attacks, he pointed out, said quite clearly they were throwing down a gauntlet to the West in all its decadence, "because they can't stand how we are; our values, our liberties, our hard-won freedoms." The gloomy corollary of this fact is that "there's not much opportunity for negotiation."

On a more practical level, he added, "we have moved the centre of gravity for the armed forces... from north-western Europe and the north Atlantic to intervention at long distances." And there is fierce debate in military circles as well as in general politics and the media about whether intervention is ever the best way to produce a more stable world.

"The history is somewhat chequered," he said. "It was largely successful in the Balkans, at the time [in the early 1990s], in Bosnia and Kosovo... I say 'at the time' because we're not quite out of the woods yet. In Kosovo, the future is uncertain. It's coming to a head as to whether Kosovo becomes independent or not, and there could be knock-on effects that will be very unhelpful."

However, he added, the intervention of UK forces in Sierra Leone in May 2000 was "an outstanding success". This was, he reminded the audience, "a very swift, decisive intervention by a relatively small force - 1,200 or so... [And] those of you who have seen the film Blood Diamond will know what I mean when I say that it saved Sierra Leone from a most appalling future."

As far as Iraq is concerned, Jackson said it was premature to write the intervention off as a complete failure, and "premature to leave before the Iraqis want us to". But, he said, we have to decide: "What is victory in this context?" In his view, the answer was simple: to build a society "at peace with itself, in peace with its neighbours and with representative government." This is not an easy challenge, but it's not impossible with the right political will, he concluded. And, as far as the UK armed forces are concerned, we just need the right resources.