Sometimes, leadership requires showing restraint and perhaps even some form of capitulation in the desire to obtain greater goals.
Having the overwhelming power to totally destroy an enemy does not necessarily dictate usage of that power in all situations. Good leaders will always put aside their personal ego and selfish pride for the greater good and exercise restraint in resolving hostile situations before deploying force.
In the case of a hostage situation, the hostage negotiator often does more good than the horde of officers and SWAT sharp shooters bearing down on the one bad guy who has a single weapon pointed at the hostages. By simple math, the firepower of law enforcement clearly outguns the bad guy. However, such overwhelming strength is for naught if they do not have the bad guy in their sights or if the bad guy kills a hostage before being killed himself.
On the other hand, through meticulously constructed conversation by a professional hostage negotiator, the bad guy may be reached and even impacted in the right manner so as to resolve the situation peacefully through surrendering.
Deploying resources to end hostile situations forcefully may have merit in certain situations; however, the loss of life on all sides through this process is usually high. This is why leadership calls for exercising all other options before relying on brute force as the solution.
By not going in with phasers and photon torpedoes blasting, Capt. Picard manages to resolve the hostage situation with just some patronizing words, stroking the egos of the alien race leader, and without diminishing the pride of the Federation.
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