What would you do, when you see lack of leadership from senior management?

Sitting in a senior mgmt. seat and having this concern with a fellow co-worker makes this question very interesting. The only thing I know to do is keep giving my objective feedback and advice to the CEO knowing he'll make the right decision in time.

Sitting at a level below senior level is just as difficult. There's the fear of telling another senior manager and falling on def ears or possible repercussions. My real only sound advice to is document issues and when you have a strong enough fact based case present that to the CEO/Board (depending on what level you are referring to). If that person chooses to do nothing with the information than the choice becomes simple; you look for another job. If you choose to stay you are doing so under the pretenses that it will never change and you have to accept that.

A good friend of mine gave me great advice once: You choose to work for someone. If they task you with washing their car, you have two choices. You wash the car because they are paying you to do so. If you don't like that job duty then you can choose to leave. Sounds silly, but it has helped me get through some pretty tough days before.

"If they task you with washing their car, you have two choices. You wash the car because they are paying you to do so. If you don't like that job duty then you can choose to leave."

You said a mouthful. BTDT. But, years of putting up with such silliness have taught me the hard way. Washing that car will hurt you in the long run but not the boss that tasks you with doing it. Wash the car to buy time but, dedicate all your efforts to getting out ASAP with no regrets.

I've ended up leaving one or two positions over the years because of a bad boss. I had tried to address the situation first but was rebuffed or ignored. Sadly, after I left, the situation was addressed and bad boss was reassigned or let go. In two cases, the companies continued to falter from lack of leadership and went under.

Get out while you can......unless you are a principal with a vested financial interest.

You need to move on. It is a vicious circle. You lose respect for the leadership, and you do not or cannot make a decision. Individuals that report to you lose respect for you because you do not make a decision, as you do not know the direction, Ineffective leadership makes everyone below them ineffective.

Probably the best resolution is to move on to a place where you have a leadership group in which you have some confidence. If you see issues with the leadership team, other employees will be seeing the same thing and a talent drain will occur because the best ones will leave first.
But, it is not always easy to just leave until you have something else lined up, so I would take advantage of the situation while you are still there. A vacuum in leadership is an opportunity for you to get some responsibility that otherwise may not be available to you.

Try "Crucial Conversations Tools for Talking When Stakes Are High" by Kerry Patterson.

There are also consultants that train in these skills, or you could self-teach from the book (below). Make no doubt about it though, you are putting your head on the chopping block. But borrowing Christie's metaphor, you can choose to wash the car (confront it) or not (silence - but is that what you're getting paid to do?).

http://www.amazon.com/Crucial-Conversations-Talking-Stakes-Second/dp/0071771328/

http://www.vitalsmarts.com/crucialconversations/
"The authors of Crucial Conversations didn’t set out to write a book on communication; rather, they began by researching the behaviors of top performers. They found that most of the time, top influencers were indistinguishable from their peers. But as soon as the stakes grew high, emotions ran strong, and opinions differed, top performers were significantly more effective. What the authors observed during this study and captured in this runaway bestseller is a distinct and learnable set of skills that produce immediate results.

"More than 2 million people and 300 of the Fortune 500 have used the skills in Crucial Conversations to successfully navigate life’s most challenging conversations.

Now it’s your turn. Learn the simple, yet powerful, skills in this book and realize significant improvements to both your relationships the results that matter most."

Having just been in this EXACT situation, all of the above comments are sound.
My story: I was one level down from the CEO-equivalent (also company founder) - this person was ill-equipped to manage the company as it has grown. The CEO "claimed" to want to hire experienced professionals to help manage, but in reality had no plan to let those hired professionals lead. I was the third Director to leave the organization in an 8 month window (late 2012 - mid-2013) and the fourth Director to leave (or be demoted) in about 30 months.
The CEO-equivalent believed her way was the only way, but when pressed on this point would deny it was her M.O. She also possesses trust issues and as a result was a micro-manager to the sub-micron level, interrupting daily operations, financial reporting, and morale of the entire staff (approx 35 ppl).
The BoD finally realized the impact of her actions and management style and recently she announced her 'retirement' (previously she adamantly resisted the suggestion of retiring).
I left the company when all attempts to work with this leader broke down and I was forced to avoid her as much as possible - I relocated my office to another building and rarely engaged her.
Moral of the story - If your leader falls into this classification, it is extremely unlikely you can "change them", so your choices end up being "grin and bear it" or bail out.
It is unfortunate when leaders cause really good companies and really good people to make this decision.
(BTW, the annual turnover rate in that company approaches 30% annually over the past 3 - 4 years)