Contemporary Theories of Leadership
Leaders are important—to organizations and to employees. The understanding of leadership is a constantly evolving science. Contemporary theories have built upon the foundation we’ve just established to discover the unique ways leaders emerge, influence, and guide their employees and organizations. Let’s explore some of the leading current concepts, and look for aspects of the theories we’ve discussed already.
Leader–Member Exchange (LMX) Theory
Think of a leader you know. Does this leader have favorites who make up an ingroup? If you answered “yes,” you’re acknowledging leader–member exchange (LMX) theory.21 LMX argues that, because of time pressures, leaders establish a special relationship with a small group of their followers. These followers make up the ingroup—they are trusted, get a disproportionate amount of the leader’s attention, and are more likely to receive special privileges. Other followers fall into the outgroup.
LMX theory proposes that early in the history of the interaction between a leader and a given follower, the leader implicitly categorizes the follower as an “in” or an “out;” that relationship becomes relatively stable over time. Leaders induce LMX by rewarding employees with whom they want a closer linkage and punishing those with whom they do not.22 For the LMX relationship to remain intact, the leader and the follower must invest in the relationship.
Just how the leader chooses who falls into each category is unclear, but there is evidence ingroup members have demographic, attitude, and personality characteristics similar to those of their leaders or a higher level of competence than outgroup members23 (see Exhibit 12-2). Leaders and followers of the same gender tend to have closer (higher LMX) relationships than those of different genders.24 Even though the leader does the choosing, the follower’s characteristics drive the categorizing decision.
Exhibit 12-2
Similarity with and Interactions between the leader, ingroup, and outgroup
Research to test LMX theory has been generally supportive, with substantive evidence that leaders do differentiate among followers; these disparities are far from random; and followers with ingroup status receive higher performance ratings, engage in more helping or citizenship behaviors at work, and report greater satisfaction with their superiors.25
One study conducted in Portugal and the United States found that LMX was associated strongly with followers’ commitment to the organization when leaders were seen as embodying the values and identity of the organization.26 Other research suggested that employees of leaders who provided family support (helping employees achieve work–life balance) in the LMX relationship were more committed and performed better.27 These findings shouldn’t be surprising given our knowledge of self-fulfilling prophecy (see Chapter 6). Leaders invest resources in those whom they expect to perform best. Believing ingroup members are the most competent, leaders treat them as such and unwittingly fulfill their prophecy.
For all the positive outcomes the ingroup receives, research indicates that both the ingroup and the outgroup realize negative effects from LMX. For example, a study in Turkey demonstrated that when leaders differentiated strongly among their followers in terms of their relationships (some followers had very positive LMX, others very poor), employees from both groups responded with more negative work attitudes and higher levels of withdrawal behavior.28 One study in China and the United States indicated that differential leadership treatment hurts team trust and perceptions of procedural justice, especially when the team members work closely together.29 Other research indicated that, although ingroup team members showed increased performance, the team as a whole became uncoordinated in the LMX environment and overall performance suffered.30 Close-knit teams may be able to help outgroup members retain their confidence and self-efficacy by offering a supportive environment,31 but this is often to the detriment of the relationship between employees and leaders.
Charismatic Leadership
Do you think leaders are born not made, or made not born? True, an individual may be literally born into a leadership position (think family heirs with surnames like Ford and Hilton), endowed with a leadership position due to past accomplishments (like CEOs who worked their way up the organizational ranks), or informally acknowledged as a leader (like a Twitter employee who knows everything because he was “there at the start”). But here we are talking not about the inputs into leadership role attainment; rather, we are focused on what makes great leaders extraordinary. Two contemporary leadership theories—charismatic leadership and transformational leadership—share a common theme in the great leader debate: They view leaders as individuals who inspire followers through words, ideas, and behaviors.
What Is Charismatic Leadership?
Sociologist Max Weber defined charisma (from the Greek for “gift”) as “a certain quality of an individual personality, by virtue of which he or she is set apart from ordinary people and treated as endowed with supernatural, superhuman, or at least specifically exceptional powers or qualities. These are not accessible to the ordinary person and are regarded as of divine origin or as exemplary, and on the basis of them the individual concerned is treated as a leader.”32
The first researcher to consider charismatic leadership in terms of organizational behavior (OB) was Robert House. According to his charismatic leadership theory, followers attribute heroic or extraordinary leadership abilities when they observe certain behaviors, and tend to give these leaders power.33 A number of studies have attempted to identify the characteristics of charismatic leaders: they have a vision, are willing to take personal risks to achieve that vision, are sensitive to follower needs, and exhibit extraordinary behaviors34 (see Exhibit 12-3). Recent research in Greece suggested that charismatic leadership increases follower organizational identification (commitment) by building a shared group identity among followers.35 Other research indicates that charismatic leadership may predict follower job satisfaction.36
Exhibit 12-3
Key Characteristics of a Charismatic Leader
Source: Based on J. A. Conger and R. N. Kanungo, Charismatic Leadership in Organizations (Thousand Oaks, CA: Sage, 1998), p. 94.
Are Charismatic Leaders Born or Made?
Are charismatic leaders born with their qualities? Or can people actually learn to be charismatic leaders? Yes, and yes.
Individuals are born with traits that make them charismatic. In fact, studies of identical twins found they scored similarly on charismatic leadership measures, even if they were raised in different households and never met. Personality is also related to charismatic leadership; charismatic leaders are likely to be extraverted, self-confident, and achievement-oriented.37 Consider the legendary qualities of U.S. presidents Barack Obama, Bill Clinton, and Ronald Reagan, and U.K. Prime Minister Margaret Thatcher, when they were in office: whether you liked them or not, they are often compared because they all exhibited the qualities of charismatic leaders.
Research indicates that charismatic leadership is not only the province of world leaders —all of us can develop, within our own limitations, a more charismatic leadership style. If you stay active and central in your leadership roles, you will naturally communicate your vision for achieving goals to your followers, which increases the likelihood you will be seen as charismatic.38 To further develop an aura of charisma, use your passion as a catalyst for generating enthusiasm. Speak in an animated voice, reinforce your message with eye contact and facial expressions, and gesture for emphasis. Bring out the potential in followers by tapping into their emotions, and create a bond that inspires them. Remember, enthusiasm is contagious!
How Charismatic Leaders Influence Followers
How do charismatic leaders actually influence followers? By articulating an appealing vision, a long-term strategy for attaining a goal by linking the present with a better future for the organization. Desirable visions fit the times and circumstances, and reflect the uniqueness of the organization. Thus, followers are inspired not only by how passionately the leader communicates, but also to an appealing message.
A vision needs an accompanying vision statement, a formal articulation of an organization’s vision or mission. Charismatic leaders may use vision statements to imprint on followers an overarching goal and purpose. These leaders also set a tone of cooperation and mutual support. They build followers’ self-esteem and confidence with high performance expectations and the belief that followers can attain them. Through words and actions, the leader conveys a new set of values and sets an example for followers to imitate. Finally, the charismatic leader engages in emotion-inducing and often unconventional behavior to demonstrate courage and conviction about the vision.
Research indicates that charismatic leadership works as followers “catch” the emotions their leader is conveying.39 One study found employees had a stronger sense of personal belonging at work when they had charismatic leaders which, in turn, increased their willingness to engage in helping and compliance-oriented behavior.40
Does Effective Charismatic Leadership Depend on the Situation?
Charismatic leadership has positive effects across many contexts. There are, however, characteristics of followers, and of the situation, that enhance or somewhat limit its effects.
One factor that enhances charismatic leadership is stress. People are especially receptive to charismatic leadership when they sense a crisis, when they are under stress, or when they fear for their lives. We may be more receptive to charismatic leadership under crises because we think bold leadership is needed. Some of it, however, may be more primal. When people are psychologically aroused, even in laboratory studies, they are more likely to respond to charismatic leaders.41
Some personalities are especially susceptible to charismatic leadership.42 For instance, an individual who lacks self-esteem and questions his or her self-worth is more likely to absorb a leader’s direction rather than establish an individual way of leading or thinking. For these people, the situation may matter much less than the desired charismatic qualities of the leader.
The Dark-Side of Charismatic Leadership
Unfortunately, charismatic leaders who are larger than life don’t necessarily act in the best interests of their organizations.43 Commensurate with this research observation, studies have indicated that individuals who are narcissistic are higher in some behaviors associated with charismatic leadership.44 Many charismatic—but corrupt—leaders have allowed their personal goals to override the goals of their organizations. For example, leaders at Enron, Tyco, WorldCom, and HealthSouth recklessly used organizational resources for their personal benefit, violated laws and ethics to inflate stock prices, and then cashed in millions of dollars in personal stock options. Some charismatic leaders—Hitler, for example—are all too successful at convincing their followers to pursue a disastrous vision. If charisma is power, then that power can be used for good . . . and for ill.
It’s not that charismatic leadership isn’t effective; overall, it is. But a charismatic leader isn’t always the answer. Success depends, to some extent, on the situation and on the leader’s vision, and on the organizational checks and balances in place to monitor the outcomes.
Transactional and Transformational Leadership
Charismatic leadership theory relies on leaders’ ability to inspire followers to believe in them. In contrast, Fiedler’s model, situational leadership theory, and path–goal theory describe transactional leaders, leaders who guide their followers toward established goals by clarifying role and task requirements. A stream of research has focused on differentiating transactional from transformational leaders,45 who inspire followers to transcend their self-interests for the good of the organization. Transformational leaders can have an extraordinary effect on their followers, who respond with increased levels of commitment.46 Richard Branson of the Virgin Group is a good example of a transformational leader. He pays attention to the concerns and needs of individual followers, changes followers’ awareness of issues by helping them look at old problems in new ways, and excites and inspires followers to put forth extra effort to achieve group goals. Research suggests that transformational leaders are most effective when their followers are able to see the positive impact of their work through direct interaction with customers or other beneficiaries.47 Exhibit 12-4 briefly identifies and defines characteristics that differentiate transactional from transformational leaders.
Exhibit 12-4
Characteristics of Transactional and Transformational Leaders
Source: Based on A. H. Eagly, M. C. Johannesen-Schmidt, and M. L. Van Engen, “Transformational, Transactional, and Laissez-faire Leadership Styles: A Meta-Analysis Comparing Women and Men,” Psychological Bulletin 129, no. 4 (2003), 569–591; and T. A. Judge and J. E. Bono, “Five Factor Model of Personality and Transformational Leadership,” Journal of Applied Psychology 85, no. 5 (2000), 751–765.”
Transactional and transformational leadership complement each other; they aren’t opposing approaches to getting things done.48 The best leaders are transactional and transformational. Transformational leadership builds on transactional leadership and produces levels of follower effort and performance beyond what transactional leadership alone can do. But the reverse isn’t true. If you are a good transactional leader but do not have transformational qualities, you’ll likely only be a mediocre leader.
Full Range of Leadership Model
Exhibit 12-5 shows the full range of leadership model. Laissez-faire, which literally means “let it be” (do nothing), is the most passive and therefore least effective of leader behaviors.49 Management by exception, in which leaders primarily “put out fires” when there are crisis exceptions to normal operating procedures, means leaders are often too late to be effective. Contingent reward leadership, which gives predetermined rewards for employee efforts, can be an effective style of leadership but will not get employees to go above and beyond the call of duty.
Exhibit 12-5
Full Range of Leadership Model
Only with the four remaining styles—all aspects of transformational leadership—are leaders able to motivate followers to perform above expectations and transcend their self-interest for the sake of the organization. Individualized consideration, intellectual stimulation, inspirational motivation, and idealized influence (known as the “four I’s”) all result in extra effort from workers, higher productivity, higher morale and satisfaction, higher organizational effectiveness, lower turnover, lower absenteeism, and greater organizational adaptability. Based on this model, leaders are most effective when they regularly use the four I’s.
How Transformational Leadership Works
Organizations with transformational leaders generally have greater decentralization of responsibility, managers with a higher propensity to take risks, and compensation plans geared toward long-term results—all of which facilitate corporate entrepreneurship.50 There are other ways transformational leadership works, as well. One study of information technology workers in China found empowering leadership behavior led to feelings of positive personal control among workers, which increased their creativity at work.51 Other research in Germany found that transformational leadership positively influenced workers’ creativity, but suggested leaders need to guard against dependent leader relationships, which lower employee creativity.52
Companies with transformational leaders often show greater agreement among top managers about the organization’s goals, which yields superior organizational performance.53 The Israeli military has seen similar results, showing that transformational leaders improve performance by building consensus among group members.54
Evaluation of Transformational Leadership
Transformational leadership has been supported at diverse job levels and occupations (including school principals, teachers, marine commanders, ministers, presidents of MBA associations, military cadets, union shop stewards, sales reps). In general, organizations perform better when they have transformational leaders. For example, one study of research and development (R&D) firms found teams whose project leaders scored high on transformational leadership produced better-quality products as judged one year later and higher profits five years later.55 A review of 117 studies testing transformational leadership found it was related to higher levels of individual follower performance, team performance, and organizational performance.56
The effect of transformational leadership on performance can vary by the situation. In general, transformational leadership has a greater impact on the bottom line in smaller, privately held firms than in more complex organizations.57 Transformational leadership can also vary depending on whether work is evaluated at the team or the individual level.58 Individual-focused transformational leadership empowers individual followers to develop ideas, enhance their abilities, and increase their self-efficacy. Team-focused transformational leaders emphasize group goals, shared values and beliefs, and unified efforts. Transformational leadership is not foolproof, though. For example, research in China suggested that, in team situations, the members’ identification with the group could override the effects of transformational leadership.59
Transformational versus Transactional Leadership
We have seen that transformational leadership yields many desirable organizational outcomes. When comparing transformational leadership with transactional leadership, research indicates transformational leadership is more strongly correlated than transactional leadership with lower turnover rates, higher productivity, lower employee stress and burnout, and higher employee satisfaction.60 However, transformational leadership theory is not perfect; the full range of leadership model shows a clear division between transactional and transformational leadership that may not fully exist in effective leadership. And contrary to the full range of leadership model, the four I’s of transformational leadership are not always superior in effectiveness to transactional leadership; contingent reward leadership—in which leaders dole out rewards as certain goals are reached by employees—sometimes works as well as transformational leadership. More research is needed, but the general supportable conclusion is that transformational leadership is desirable and effective, given the right application.
Transformational versus Charismatic Leadership
In considering transformational and charismatic leadership, you surely noticed some commonalities. There are differences, too. Charismatic leadership places somewhat more emphasis on the way leaders communicate (are they passionate and dynamic?), while transformational leadership focuses more on what they are communicating (is it a compelling vision?). Still, the theories are more alike than different. At their heart, both focus on the leader’s ability to inspire followers, and sometimes they do so in the same way. Because of this, some researchers believe the concepts are somewhat interchangeable.