How do you teach them basics of discipline and what's right and wrong if you are letting them lead the way?

I personally believe that talking is a good way of explaining. Communication is vital no matter what age the child is. Even though I must say at times it may seem that we are having a one sided conversation. Nevertheless, that is not true. In fact children role model. The best way of teaching is by doing, and talking is just an additionnal way of enforcing and encouraging the behaviour we hope to achieve.