Have you ever been in a group in which the leader had “favorites” who made up his or her in-group? If so, that’s the premise behind leader-member exchange (LMX) theory.26 Leader-member exchange (LMX) theory says that leaders create in-groups and out-groups and those in the in-group will have higher performance ratings, less turnover, and greater job satisfaction.

LMX theory suggests that early on in the relationship between a leader and a given follower, a leader will implicitly categorize a follower as an “in” or as an “out.” That relationship tends to remain fairly stable over time. Leaders also encourage LMX by rewarding those employees with whom they want a closer linkage and punishing those with whom they do not.27 For the LMX relationship to remain intact, however, both the leader and the follower must “invest” in the relationship.

It’s not exactly clear how a leader chooses who falls into each category, but evidence indicates that in-group members have demographic, attitude, personality, and even gender similarities with the leader or they have a higher level of competence than out-group members.28 The leader does the choosing, but the follower’s characteristics drive the decision.

Research on LMX has been generally supportive. It appears that leaders do differentiate among followers; that these disparities are not random; and followers with in-group status will have higher performance ratings, engage in more helping or “citizenship” behaviors at work, and report greater satisfaction with their boss.30 These findings probably shouldn’t be surprising when leaders are most likely to invest their time and other resources in those whom they expect to perform best.

Many early leadership theories viewed leaders as transactional leaders; that is, leaders who lead primarily by using social exchanges (or transactions). Transactional leaders guide or motivate followers to work toward established goals by exchanging rewards for their productivity.31 But another type of leader—a transformational leader—stimulates and inspires (transforms) followers to achieve extraordinary outcomes. How? By paying attention to the concerns and developmental needs of individual followers; changing followers’ awareness of issues by helping those followers look at old problems in new ways; and being able to excite, arouse, and inspire followers to exert extra effort to achieve group goals.

Transactional and transformational leadership shouldn’t be viewed as opposing approaches to getting things done.32 Transformational leadership develops from transactional leadership. Transformational leadership produces levels of employee effort and performance that go beyond what would occur with a transactional approach alone. Moreover, transformational leadership is more than charisma since the transformational leader attempts to instill in followers the ability to question not only established views but those views held by the leader.33

The evidence supporting the superiority of transformational leadership over transactional leadership is overwhelmingly impressive. For instance, studies that looked at managers in different settings, including the military and business, found that transformational leaders were evaluated as more effective, higher performers, more promotable than their transactional counterparts, and more interpersonally sensitive.34 In addition, evidence indicates that transformational leadership is strongly correlated with lower turnover rates and higher levels of productivity, work engagement, employee satisfaction, creativity, goal attainment, and follower well-being.35

Jeff Bezos, founder and CEO of Amazon.com, is a person who exudes energy, enthusiasm, and drive.36 He’s fun-loving (his legendary laugh has been described as a flock of Canada geese on nitrous oxide), but he has pursued his vision for Amazon with serious intensity and has demonstrated an ability to inspire his employees through the ups and downs of a rapidly growing company. Bezos is what we call a charismatic leader—that is, an enthusiastic, self-confident leader whose personality and actions influence people to behave in certain ways.

Several authors have attempted to identify personal characteristics of the charismatic leader.37 The most comprehensive analysis identified five such characteristics: they have a vision, the ability to articulate that vision, willingness to take risks to achieve that vision, sensitivity to both environmental constraints and follower needs, and behaviors that are out of the ordinary.38

An increasing body of evidence shows impressive correlations between charismatic leadership and high performance and satisfaction among followers.39 Although one study found that charismatic CEOs had no impact on subsequent organizational performance, charisma is still believed to be a desirable leadership quality.40

If charisma is desirable, can people learn to be charismatic leaders? Or are charismatic leaders born with their qualities? Although a small number of experts still think that charisma can’t be learned, most believe that individuals can be trained to exhibit charismatic behaviors.41 For example, researchers have succeeded in teaching undergraduate students to “be” charismatic. How? They were taught to articulate a far-reaching goal, communicate high performance expectations, exhibit confidence in the ability of subordinates to meet those expectations, and empathize with the needs of their subordinates; they learned to project a powerful, confident, and dynamic presence; and they practiced using a captivating and engaging voice tone. The researchers also trained the student leaders to use charismatic nonverbal behaviors including leaning toward the follower when communicating, maintaining direct eye contact, and having a relaxed posture and animated facial expressions. In groups with these “trained” charismatic leaders, members had higher task performance, higher task adjustment, and better adjustment to the leader and to the group than did group members who worked in groups led by noncharismatic leaders.

One last thing we should say about charismatic leadership is that it may not always be necessary to achieve high levels of employee performance. It may be most appropriate when the follower’s task has an ideological purpose or when the environment involves a high degree of stress and uncertainty.42 This aspect may explain why, when charismatic leaders surface, it’s more likely to be in politics, religion, or wartime; or when a business firm is starting up or facing a survival crisis. For example, Martin Luther King Jr. used his charisma to bring about social equality through nonviolent means, and the late Steve Jobs achieved unwavering loyalty and commitment from Apple’s technical staff in the early 1980s by articulating a vision of personal computers that would dramatically change the way people lived.

Although the term vision is often linked with charismatic leadership, visionary leadership is different: It’s the ability to create and articulate a realistic, credible, and attractive vision of the future that improves on the present situation.43 This vision, if properly selected and implemented, is so energizing that it “in effect jump-starts the future by calling forth the skills, talents, and resources to make it happen.”44

An organization’s vision should offer clear and compelling imagery that taps into people’s emotions and inspires enthusiasm to pursue the organization’s goals. It should be able to generate possibilities that are inspirational and unique and offer new ways of doing things that are clearly better for the organization and its members. Visions that are clearly articulated and have powerful imagery are easily grasped and accepted. For instance, Michael Dell created a vision of a business that sells and delivers customized PCs directly to customers in less than a week. The late Mary Kay Ash’s vision of women as entrepreneurs selling products that improved their self-image gave impetus to her cosmetics company, Mary Kay Cosmetics.

Because leadership is increasingly taking place within a team context and more organizations are using work teams, the role of the leader in guiding team members has become increasingly important. The role of team leader is different from the traditional leadership role, as J. D. Bryant, a supervisor at Texas Instruments’ Forest Lane plant in Dallas, discovered.47 One day he was contentedly overseeing a staff of 15 circuit board assemblers. The next day he was told that the company was going to use employee teams and he was to become a “facilitator.” He said, “I’m supposed to teach the teams everything I know and then let them make their own decisions.” Confused about his new role, he admitted, “There was no clear plan on what I was supposed to do.” What is involved in being a team leader?

Many leaders are not equipped to handle the change to employee teams. As one consultant noted, “Even the most capable managers have trouble making the transition because all the command-and-control type things they were encouraged to do before are no longer appropriate. There’s no reason to have any skill or sense of this.”48 This same consultant estimated that “probably 15 percent of managers are natural team leaders; another 15 percent could never lead a team because it runs counter to their personality—that is, they’re unable to sublimate their dominating style for the good of the team. Then there’s that huge group in the middle: Team leadership doesn’t come naturally to them, but they can learn it.”49

The challenge for many managers is learning how to become an effective team leader. They have to learn skills such as patiently sharing information, being able to trust others and to give up authority, and understanding when to intervene. And effective team leaders have mastered the difficult balancing act of knowing when to leave their teams alone and when to get involved. New team leaders may try to retain too much control at a time when team members need more autonomy, or they may abandon their teams at times when the teams need support and help.50

One study looking at organizations that had reorganized themselves around employee teams found certain common responsibilities of all leaders. These responsibilities included coaching, facilitating, handling disciplinary problems, reviewing team and individual performance, training, and communication.52 However, a more meaningful way to describe the team leader’s job is to focus on two priorities: (1) managing the team’s external boundary and (2) facilitating the team process.53 These priorities entail four specific leadership roles, as shown in Exhibit 13–5.

Exhibit 13–5

Team Leader Roles