(FORTUNE Magazine) – You've always wondered how you'd handle it. A crisis hits. You're the person in charge. Do you rise to the occasion? Or do you freeze up, wallow in self-doubt, or otherwise fumble your chance to shine?

Either way, you're about to find out. After years of losing ground to its dowdy cousin, Management, Leadership is back. And it's looking more vital than ever: With the double threat of terrorism and recession in the air, employees are worried about both their lives and their livelihoods. The current crisis has transformed George W. Bush's presidency and Rudy Giuliani's place in history--and it's likely to affect your career too.

For some careers, a crisis can do wonders. Ulysses S. Grant was a depressive alcoholic at the outbreak of the Civil War. Winston Churchill spent most of the 1930s exiled to a political Elba. And before Sept. 11 of this year, the mayor of New York City was something of a soap-opera figure. (Was Churchill speaking of Field Marshal Montgomery or Giuliani when he said, "In defeat, indomitable. In victory, insufferable"?)

On the flip side, a crisis can derail once-flourishing careers. In the middle of a hard-fought battle in May 1862, for instance, Major General Gustavus Smith was suddenly handed command of the Confederacy's largest army after his boss, Joseph Johnston, was wounded. There's a reason you don't see Gustavus Smith elementary schools in the South today: The general simply froze, incapacitated by the hugeness of the responsibility, at one point asking Confederate President Jefferson Davis what he thought of the ongoing battle. After less than a day in the job, Smith was relieved by one of Davis' aides--Robert E. Lee.

As Smith discovered, being a boss is not the same as being a leader. Bosses inherit subordinates. Leaders earn followers. But there is good news: People want to be led. Indeed, as the recent outpourings of support for political figures have reminded us, people are starved for it. The sociologist Max Weber called it the "devotion born of distress," which is a reminder that, for all the talk of empowerment and flattened hierarchies, leadership is something elemental. Primates choose leaders. Groups of 5-year-olds choose leaders. It's in our DNA.

What's the advantage of having a leader? Put simply, leaders serve as a repository for people's fears. "More than ever, the role of the leader is to absorb uncertainty," notes Jim Citrin, an executive recruiter at Spencer Stuart. Leaders can also act as a mirror, reflecting a group's anger, grief, resolve, or joy on a much larger stage than is available to most. Leaders say, in effect, "I hear you."

Some seem to do so with perfect pitch. During Bush's visit to the World Trade Center wreckage, one worker yelled that he couldn't hear the President. "I can hear you" was Bush's unscripted response. "The world hears you, and the people who knocked these buildings down will hear from all of us soon."

As the porter of a community's emotional baggage, a leader carries a double burden. Since the offices of his ten-person startup, Broadway Digital Entertainment, were wrecked by the falling Twin Towers, Basil Hero has been haunted by nightmarish images: the streak of the second plane, the orange ball of flame, the pair of shoes flying past his head. Yet he has had to worry about comforting employees more traumatized than he. "The question that rarely gets asked is, 'Whose shoulder does the poor CEO cry on?'" he says. He knows the answer: nobody's.

Being a good leader does not require Churchillian eloquence. It's nice if, like British Prime Minister Tony Blair, you happen to have that. But more important is to stick to a few principles that apply in politics, business, or any other field:

Stand up and be seen

Justice, they say, must not only be done but must be seen to be done. The same goes for leadership. This is not the time to lock yourself away in strategy sessions. It's time to be visible. What did everyone say about Giuliani? "He was everywhere"--with the firefighters, on television, running for his life when the second tower collapsed. What did everyone ask about Bush as he zigzagged toward the capital on Sept. 11? "Where is he?"

"A situation like this is not unlike combat," says Ed Vick, the outgoing CEO of Young & Rubicam Advertising and a decorated Vietnam veteran. "You either lead by example, or you don't lead at all." On the Monday following the World Trade Center attack, Vick decided to try a little visibility of his own, greeting employees in the lobby of the company's midtown Manhattan headquarters. Nothing elaborate--simply a welcome back and how are you. Yet the gesture elicited a flood of gratitude over the following days that, says Vick, "just blew me away."

Failure to be seen, on the other hand, can spark negative reactions just as strong. An ex-employee of a Silicon Alley firm complains that her CEO, stranded on a business trip after the attacks, didn't bother contacting anyone at the company for two days. When he did return, she reports, "he sort of hid in the corner," prefacing a short speech to the company with the remark, "I'm not going to pretend to be anyone's spiritual advisor." How did this employee learn she was losing her job? Not from the CEO, but from a casual comment dropped at a co-worker's barbecue. "Some people are born leaders," she figures. "Some people shine in crisis mode. Other people run and hide in the corner."

Embrace brutal optimism

How much emotion should you show your subordinates? That's a question that Kerry Sulkowicz, a psychoanalyst who has volunteered his services to New York employers, says he hears repeatedly. The answer: It's okay to show quite a lot. But it's not okay to show fear.

First recognize that, unlike anthrax, a leader's emotions are contagious. Put an irritable person among a group of volunteers, one study has shown, and the other group members become more irritable. Even nervous habits can spread: Lore has it that Microsoft employees rock back and forth as they argue a point, in tacit tribute to Bill Gates' habit. Leaders who can't master their own fears can thus infect an entire group, says Daniel Goleman, a psychologist and the author of the forthcoming book Primal Leadership.

What happens then? Anxiety constricts the mind, psychologists tell us, preventing it from taking in new information about a threat, or from fashioning creative responses to it. That's why Eugene Kranz, the NASA flight director charged with returning the crippled Apollo 13 spacecraft safely to Earth in 1970, aimed his first comments at stemming the mounting panic inside mission control: "Let's everybody keep cool." "Let's not make it worse by guessing." While he privately confided to a superior that the mission was "in deep shit," he also knew the anticipation of failure could become self-fulfilling. "You do not pass uncertainty down to your team members," he said later. "No matter what is going on around you, you have to be cooler than cool."

That doesn't mean denying the existence of danger. Indeed, there's nothing scarier than the leader who tries to reassure too much. When Treasury Secretary Paul O'Neill blithely predicted after the attacks that a recession could be avoided and that the stock market could hit an all-time high in 12 to 18 months, few believed him. Even fewer believed Health and Human Services Secretary Tommy Thompson when he speculated that the first anthrax victim got the disease by drinking from a stream in North Carolina. Both men are now suffering from what one leadership expert calls a "credibility spiral." The lesson is simple: People need to hear the bad news straight, so that when they hear the good news, it means something.

In the end, the best leaders combine two countervailing messages. Jim Collins, a management thinker and the author of Good to Great, sometimes describes this as the "Churchill paradox." On the one hand was the Prime Minister's grim promise of "blood, toil, tears, and sweat" in the near term. On the other was his upbeat certainty that England would prevail "however long and hard the road may be." Call it brutal optimism. It's the only kind that works.

"There is no worse mistake in public leadership," Churchill concluded after the war, "than to hold out false hopes soon to be swept away."

Stick to the facts

Don't get ahead of them, don't let them get ahead of you, and don't bog down in them. The model is Giuliani, who gently edged us toward the finality of a death toll that would be "more than any of us can bear."

At the Pentagon, Defense chief Donald Rumsfeld has put on a clinic in crisp communication. Transformed from a widely disliked Secretary of Defense into a widely respected Secretary of War, he has refused to exaggerate successes, gloss over risks, or wade into questions he can't answer. "Mr. Rumsfeld's waffle quotient is remarkably low," The Economist recently opined. "He either speaks straightforwardly, or not at all."

The same could be said of Warren Buffett, who took the unusual step of writing a letter to Berkshire Hathaway's operating managers in late September. How big a hit had Berkshire taken? "Even with tax recoveries, our loss is huge," Buffett wrote. "Nevertheless, it's one Berkshire can easily bear." What about the economy? "I'm sure we are in a recession, probably a relatively deep and extended one, but they are part of business life and we are prepared. In short, you do the managing, and I'll do the worrying." You can't get much plainer than that, and Buffett says several managers thanked him for the letter.

To have their proper effect, of course, words must be aligned with actions. When Congress urges the country to go about its business while the House of Representatives is evacuating its premises, people start to wonder. When officials advise people not to take precautionary doses of Cipro while New York Governor George Pataki says he's doing just that, people start to worry. A leader is a symbol as a matter of fact, not as a matter of choice, as John W. Gardner observed in his book On Leadership. If your actions seem to undermine your words, you'll create problems no amount of jawboning can fix.

The bottom line comes second

We shouldn't have to tell you what comes first. "The most important thing is to have people know that they're secure and cared about--that they're not just cogs," says Dee Soder, an advisor to top executives and the founder of the CEO Perspective Group in New York City.

Because many workers feel a company reveals its true colors during a crisis, companies that come off as insensitive, or grudging, run the risk of alienating employees permanently. "If you think in terms of maximizing profitability over the very long term, your decisions need to include responsibility to employees and responsibility to the community," says Aaron Feuerstein, the 75-year-old CEO of Malden Mills in Lawrence, Mass. He gained fame in 1996 for keeping every employee on the payroll after the company's factory burned to the ground. That's a gesture most CEOs today aren't likely to replicate. But smaller gestures can go a long way: Jack Watters, a vice president at pharmaceuticals giant Pfizer, says he has been motivated by the company's empathic response to the Sept. 11 attacks, which included donations of medical supplies and frequent missives from CEO Hank McKinnell. "It made me feel inspired," says Watters, "and showed the way for how to lead my own people."

Link the ordinary to the extraordinary

In the wake of events, employees are apt to ask themselves searching questions about their careers and priorities. With national security at stake, the thought goes, how important can my little job be? Probably not as important as the work of firefighters and Army Rangers, granted. But creative leaders find ways to connect the humdrum of people's jobs with the larger causes on their minds.

Mark Loehr, the 45-year-old CEO of high-tech investment bank SoundView Technology Group, did that by announcing that the profits from an entire day's trading would go to victim relief. The day, Sept. 20, became SoundView's busiest ever: With Loehr personally manning the trading desk in Stamford, Conn., the firm earned more than $6 million, far exceeding its previous one-day high of $1.2 million. Less calculable was the impact on employee morale. "When I look back on this year, that was the most important day for me other than the day of the attacks," says trader Adam Weisman. "Instead of feeling helpless and watching it on TV, we felt like we could do something."

At the same time, Loehr urged employees to write down their thoughts about the terrorist attacks. The response was overwhelming: Poems, reflections, and stories of personal loss poured in. Two employees collected them, organized them by theme, and published them as a small book entitled And Then the Rain Came: September 11, 2001. Documenting the company's shared ordeal, says Elizabeth Schimel, a managing director, helped her and others return to work. Says Loehr: "I had no idea how strongly people needed it."

Find a story

The best leaders use narratives, not PowerPoint slides, to inspire. The Union stands for liberty, secession would destroy the Union, therefore secession is a threat to liberty: That was Abraham Lincoln's story in 1861. This is not the end, it is not even the beginning of the end, though it is perhaps the end of the beginning: That was Winston Churchill's story in 1942. Such narratives distinguish leadership from mere crisis management because they are, above all, forward-looking.

And moments of crisis are times to be looking forward. Impossible, you say? When an executive named David Maxwell took over Fannie Mae in 1981, the mortgage-lending company was losing $1 million a day and staggering under $56 billion of money-losing loans. Yet instead of merely battening down the hatches and hoping to stay afloat, Maxwell did something more. "We [decided] to use the calamity as an opportunity to remake Fannie Mae into a great company," he recalled later to Jim Collins, who wrote about the company. Maxwell did just that: Since that low point, Fannie Mae's stock has beaten the market by a factor of ten to one.

Maxwell said he had one thing going for him: Nobody expected much from the company. Today's mood of low expectations on Wall Street also provides great cover for making tough changes. In sailing, they say races are won at night and in light wind, notes Tom Knighton, a consultant at Forum Corp. in Boston. Companies that aggressively refit themselves today will sail fastest when the wind picks up again.

Don't overreach

So you've done everything right, you've earned your leadership merit badge, and now your people are giving you a standing ovation. Next piece of advice: They're not really cheering for you. They're cheering for themselves--and for the group's ability to unite and persevere under threat. Lose sight of that, and you violate the delicate compact between leader and led. That was Rudy Giuliani's mistake when he tried to extend his term in office another three months. While 91% of New Yorkers admired his handling of the crisis, it turned out, they were divided on his plan to stick around. It wasn't quite Alexander Haig declaring "I'm in charge" after Ronald Reagan was shot, but the lesson is the same.

Mistakes aren't irreversible

Really. People are so starved for leadership, they will forgive a whole lot of missteps if you can finally get it right. That was good news for Bush after his shaky start on Sept. 11. And it's good news for you.

So remember: The only real training for leadership is leadership. Those who pass the test will be tomorrow's stars. Those who don't...well, get in line behind Gustavus Smith.

REPORTER ASSOCIATE Alynda Wheat

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