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EJBO Electronic Journal of Business Ethics and Organization Studies Vol. 10, No. 1 (2005)
Leader-Member Exchange, Transformational
Leadership, and Value System
By: Venkat R. Krishnan Introduction agents” thus resulting in a transforming
MAIL@RKVENKAT.COM effect on both leaders and followers.
The constant change that has become Transformational leadership raises the
Abstract a part of life for many organizations level of human conduct of both leader
This study looked at the relationship highlights the increasing importance of and follower. Bass (1985) defined a trans-
between leader-member exchange transformational leadership. Superior formational leader as one who motivates
(LMX), transformational leadership, performance is possible only by trans- followers to do more than they originally
forming followers’ values, attitudes, and expected to do. Transformational leaders
and terminal and instrumental value motives from a lower to a higher plane broaden and change the interests of their
system congruence between leader of arousal and maturity (Bass, 1985). followers, and generate awareness and ac-
and follower, and their relative Transformational leadership is positively ceptance of the purposes and mission of
impact on four outcomes, using a related to the amount of effort followers the group. They stir their followers to look
sample of 100 pairs of managers are willing to exert, satisfaction with the beyond their self-interest for the good of
and subordinates from a non-profit leader, ratings of job performance, and the group. Palmer, Walls, Burgess, and
perceived effectiveness (Bass, 1998). Ger- Stough (2001) found that transforma-
organization in the United States. stner and Day (1997) argued that trans- tional leadership was positively related to
The four outcomes studied are per- formational leadership seems conceptu- the ability to monitor and manage emo-
ceived effectiveness of leader and ally similar to the process of developing tions in oneself and others.
work unit, follower satisfaction with a unique exchange relationship that is Transformational leadership consists
leader, follower’s motivation to put central to Leader-Member Exchange of four factors—charismatic leader-
in extra effort, and follower’s inten- (LMX). LMX has been found to be posi- ship or idealized influence, inspirational
tively related to transformational leader- leadership or motivation, intellectual
tion to quit the organization. Results ship (Deluga, 1992). The relationship of stimulation, and individualized consid-
of correlation analyses indicate that leader-follower value system congruence eration. Followers have complete faith
LMX is positively related to trans- with LMX and transformational leader- in charismatic leaders, feel proud to be
formational leadership, which in ship has however not been adequately associated with them, and trust their ca-
turn is positively related to terminal explored. Burns (1978) considered pacity to overcome any obstacle. Inspira-
value system congruence. Results transformational leadership to be a rela- tional leadership involves the arousal and
tionship wherein leaders and followers heightening of motivation among fol-
of regression analyses using the raise one another to higher levels of mo- lowers. Intellectual stimulation arouses
forward option show that transfor- tivation. Their purposes, which might in followers the awareness of problems
mational leadership is a stronger have started out as separate but related, and how they may be solved, and stirs the
predictor of effectiveness, satisfac- become fused, leading to greater leader- imagination and generates thoughts and
tion, and extra effort than LMX and follower congruence in value hierarchies. insights. Individualized consideration
terminal value system congruence. Thus, value system congruence between involves giving personal attention to fol-
leader and follower could be among the lowers who seem neglected, treating each
LMX explains significant additional most important characteristics of trans- follower individually, and helping each
variance in satisfaction and extra formational leadership. This paper is an follower get what he or she wants (Bass,
effort than what is already explained attempt to look at how LMX and trans- 1998). Boehnke, Bontis, DiStefano, and
by transformational leadership. LMX formational leadership are related to value DiStefano (2003) even found support
is a stronger predictor of follower’s system congruence, and analyze the rela- for the claim that the main dimensions of
intention to quit than transfor- tive impact of all the three on four out- leadership for extraordinary performance
comes—perceived effectiveness of leader are universal.
mational leadership and terminal and work unit, follower satisfaction with The transformational leadership
value system congruence. LMX also leader, follower’s motivation to put in ex- model adds to the two fundamental
mediates the relationship between tra effort, and follower’s intention to quit leadership behaviors of initiation and
transformational leadership and the organization. consideration in explaining the variance
intention to quit. Instrumental value in subordinates’ satisfaction and ratings
system congruence between leader of leader effectiveness (Seltzer & Bass,
Transformational Leadership 1990). Studies have looked at the sepa-
and follower is not significantly rate impact of the various components of
related to any of the variables. According to Burns (1978: 4), “the transformational leadership on perform-
result of transforming leadership is a re- ance and attitudes. Leader’s vision and
lationship of mutual stimulation and el- vision implementation through task cues
evation that converts followers into lead- affects performance and many attitudes
ers and may convert leaders into moral of subordinates (Kirkpatrick & Locke,
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EJBO Electronic Journal of Business Ethics and Organization Studies Vol. 10, No. 1 (2005)
1996). Strength of delivery of vision by the leader is an especial- tional. To the extent that LMX measures tap mutual respect,
ly important determinant of perceptions of leader charisma and trust, and the overall quality of the working relationship, LMX
effectiveness (Awamleh & Gardner, 1999). Task feedback inter- is oriented toward transformational leadership. There is emerg-
acts with charismatic leadership in affecting performance, and ing support for the claim that LMX may be transformational,
this relationship is mediated by subordinate’s self-efficacy (Shea at least at certain times and under certain conditions (Gerstner
& Howell, 1999). Cremer and Knippenberg (2002) showed & Day, 1997; Schriesheim, Castro, & Cogliser, 1999). Krishnan
that the interactive effect of leader charisma and procedural (2004) found that LMX and transformational leadership were
fairness on cooperation was mediated by their interactive effect positively related to each other. Dasborough and Ashkanasy
on the sense of group belongingness. Shamir, Zakay, Breinin (2002) argued that if prior interactions within the leader-mem-
and Popper (1998) found that a leader’s emphasis on collective ber relationship have resulted in the members liking the leader,
identity was related to subordinate’s level of identification with then members are more likely to consider the leader as truly
the leader. Kark, Shamir, and Chen (2003) found that identi- transformational. Therefore, I hypothesized:
fication with leader mediated the relationship between trans- Hypothesis 1. LMX would be positively related to transfor-
formational leadership and follower’s dependence, and identifi- mational leadership.
cation with the work group mediated the relationship between Leadership is a relationship between leaders and followers,
transformational leadership and follower’s empowerment. and building this relationship requires an appreciation for the
personal values of those who would be willing to give their ener-
gy and talents to accomplish shared objectives. Values form the
Leader-Member Exchange (LMX) very core of personality, and they influence the choices people
make, the appeals they respond to, and the way they invest their
The LMX theory occupies a unique position among leader- time and energy (Posner & Schmidt, 1992). Values assume
ship theories because of its focus on the dyadic relationship be- even more importance in the case of transformational lead-
tween leader and follower. LMX theory was originally referred ers, since transformational leadership results in changing the
to as Vertical Dyad Linkage (VDL) theory (Dansereau, Graen needs and values of both leaders and followers. Burns (1978)
& Haga, 1975). According to VDL approach, leaders and fol- held that transformational leadership is based on the role of
lowers develop dyadic relationships and leaders treat individual conscious purpose drawn from values. Transformational lead-
followers differently, resulting in two groups of followers—an ership involves the uncovering of contradictions among values
in-group and an out-group. The in-group consists of a small and between values and practice, and the realigning of values in
number of trusted followers with whom the leader usually es- followers.
tablishes a special higher quality exchange relationship. The
out-group includes the remaining followers with whom the re-
lationship of the leader remains more formal. These varying so- Value System Congruence
cial exchange relationships are relatively enduring; they develop
due to the leader’s limited time and energy, and inability to give Rokeach (1973: 5) defined a value as “an enduring belief that
equal attention to all followers (Gerstner & Day, 1997). a specific mode of conduct or end-state of existence is person-
Quality of leader-member exchange has been found to be ally or socially preferable to an opposite or converse mode of
positively related to follower’s satisfaction, organizational com- conduct or end-state of existence.” A belief concerning a de-
mitment, role clarity, performance ratings given by leaders, and sirable mode of conduct is an instrumental value and a belief
objective performance, and negatively related to role conflict concerning a desirable end-state of existence is a terminal value.
and turnover intentions (Bauer & Green, 1996; Deluga, 1998; Values may be thought of as internalized normative beliefs that
Gerstner & Day, 1997; Schriesheim, Castro, & Cogliser, 1999). can guide behavior. If a person values freedom as an end-state of
Overall, results of studies suggest that having a high-quality re- existence, it means that he or she believes that freedom is pref-
lationship with one’s leader can affect the entire work experi- erable to slavery. Values can be conceptualized in two distinct
ence in a positive manner, including performance and affective ways—ipsative in which values are rank-ordered, and non-ipsa-
outcomes (Gerstner & Day, 1997). Cogliser and Schriesheim tive in which various values are measured independent of each
(2000) found that work group cohesiveness, organizational cli- other. A set of rank-ordered values is called a value system. Only
mate, and leader power were related to LMX. The development the ipsative (rank-ordering) measurement model can capture
of relationships in a leader-follower dyad can also be looked at the unique value configuration of an individual. That a person
in terms of a life-cycle model with three possible stages (Graen values happiness does not say much that is unique about that
& Uhl-Bien, 1991). The relationship begins with an initial test- person, for most human beings value happiness. What matters
ing phase and remains at the out-group level if it does not pro- most is how much a person values happiness in comparison
ceed to the next stage. If the relationship proceeds to the second with the other things that he or she values. If one knows that a
stage, mutual trust, loyalty, and respect are developed. Some person values happiness more than self-respect, one can have a
relationships proceed to a third stage wherein self-interest gives more accurate picture of that person.
way to mutual commitment to the mission. According to Graen Value systems are enduring and it is important to under-
and Uhl-Bien (1991), this final stage corresponds to transfor- stand value systems because they make a difference in terms
mational leadership. of how people feel about themselves and their work. Several
LMX is conceptually described as an exchange process, studies have demonstrated empirically how value systems affect
making it appear to be a transactional leadership model, but it is personal and organizational effectiveness (Meglino & Ravlin,
not usually measured this way. Members of the in-group are not 1998). Value systems have been found to predict various out-
told what is expected in return for the rewards they are given as comes including shopping selections (Homer & Kahle, 1988)
part of a high-quality exchange. Since leaders do not make ex- and weight losses (Schwartz & Inbar-Saban, 1988). Values in-
plicit demands on followers in the form of harder work for these fluence job choice decisions, job satisfaction, and commitment
rewards, the relationship might be characterized as transforma- (Judge & Bretz, 1992). Blickle (2000) found that work values
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EJBO Electronic Journal of Business Ethics and Organization Studies Vol. 10, No. 1 (2005)
predicted the frequency of use of influence strategies measured dicates a harmonious relationship between leader and subordi-
one year later. nate; it should therefore result in greater satisfaction over time
Value system congruence between leader and follower could and a stronger desire to continue the relationship. Value congru-
be defined as the extent of agreement between the leader’s value ence between employees and their supervisors is positively re-
system and the follower’s value system. Weiss (1978) found that lated to employee satisfaction and commitment (Meglino, Rav-
people aligned their values with the values of their leader if they lin & Adkins, 1989). Jung and Avolio (2000) found that value
perceived their leader to be competent and successful. Trans- congruence between leader and follower was positively related
formational leadership is likely to enhance the value system to follower satisfaction. Erdogan, Kraimer, and Liden (2002)
congruence between leader and follower. Congruence in val- demonstrated the complementary nature of LMX and person-
ues between leader and follower forms the strategic and moral organization fit in explaining job and career satisfaction.
foundation of authentic transformational leadership (Bass & The distinguishing feature of transformational leaders is
Steidlmeier, 1999). An important difference between LMX and that they are held in high regard and respected by their follow-
transformational leadership is the fusion of goals of leader and ers. Dvir, Eden, Avolio, and Shamir (2002) found that trans-
follower. Burns (1978) considered the fusion of goals between formational leadership enhanced direct followers’ development
leader and follower to be an essential component of transfor- and indirect followers’ performance. The shared perspective of
mational leadership. LMX on the other hand, even when it is a the transformational leader’s idealized vision and its potential
high quality exchange relationship or has reached the final stage for satisfying followers’ needs make the leader likable. The per-
of mature relationship, does not address the question of chang- sonalized relationship between transformational leader and fol-
ing the goals or value systems of followers. A high quality rela- lowers creates an environment in which the followers would feel
tionship is not necessarily an engaging relationship that would happy to work with the leader. The transformational leader is an
result in a transforming effect on both leader and follower. High ideal or a role model for the follower, and hence the follower is
quality exchange relationship simply presupposes a clear mutual likely to be influenced the most by such a leader. Therefore:
understanding of each other’s value systems and goals, and does Hypothesis 3. Transformational leadership would be a
not imply enhancing similarity in value systems. stronger predictor of perceived effectiveness of leader and work
Krishnan (2004) found that transformational leadership unit, follower satisfaction with leader, and follower’s motivation
mediated the relationship between LMX and value system con- to put in extra effort, than LMX or value system congruence.
gruence. He used a list of ten values and did not distinguish Shalley, Gilson, and Blum (2000) found that a work environ-
between terminal and instrumental values. The vision that a ment that complements job-required creativity had a negative
transformational leader has serves as a unifying force that facili- effect on intentions to quit. Relationship with leader could be a
tates the convergence of leader’s and follower’s thoughts, beliefs part of such work environment. Scott, Bishop, and Chen (2003)
and values (Kirkpatrick & Locke, 1996; Shamir et al., 1998). demonstrated support for a model in which job satisfaction
Jung and Avolio (2000) found that transformational leader- mediated the relationships between elements of a participative
ship was positively related to value congruence between leader work environment and employee willingness to cooperate with
and follower. They measured value congruence as the extent to co-workers and intention to quit. The relationships individuals
which followers agreed with leaders’ values, and they did not had with their work groups were part of the work environment.
distinguish between terminal and instrumental values. Howev- Vecchio (1982) found that LMX was negatively related to pro-
er, transformational leadership focuses on the joint purposes of pensity to quit. The quality of relationship between leader and
leader and subordinate, and often results in transforming those follower would be the most important factor in making the fol-
purposes. Only the terminal values pertain to end-states of ex- lower continue to remain in that relationship. Transformational
istence, and so the leadership that focuses on purposes will be leadership will have a role to play in follower’s intention to quit
related only to the terminal values. Hence, I hypothesized: the job only after the follower considers the quality of relation-
Hypothesis 2. Transformational leadership would be posi- ship to be high. Thus:
tively related to terminal value system congruence between Hypothesis 4. LMX would be a stronger predictor of fol-
leader and follower. lower’s intention to quit the organization, than transformation-
al leadership or value system congruence.
Follower Outcomes
Method
Followers have a strong identification with leaders who are
transformational, and so they would be willing to put in extra I collected data for this study from a large, non-profit, na-
effort for the sake of such leaders. Several studies have docu- tional, human service organization in the United States. Blood
mented a high positive correlation between transformational services (collecting and distributing blood and blood products
leadership and perceived effectiveness of leader and work unit to hospitals) comprised a major portion of the organization’s
and extra effort from follower. Impact of transformational lead- domain of activity. Disaster relief, health services, and armed
ership on follower effort and performance would be enhanced forces services were the most important areas of operation af-
if followers hold personal values that are compatible with their ter blood services. The organization had total staff strength of
leaders’ (Klein & House, 1995). Leader’s vision is especially 28,000, and operated on a $1.5 million annual budget.
powerful when it is congruent with follower’s personal values
(Shamir, 1995). Jung and Avolio (2000) found that transforma-
tional leadership, besides directly enhancing follower perform- Sample Characteristics
ance, also had an indirect effect on performance through value
congruence between leader and follower. Those surveyed belonged to one of the 46 regional blood
Posner (1992) found that perceived value congruence was centers, spanning two northeastern states. Some of the re-
directly related to positive work attitudes. Value congruence in- spondents were handed over the surveys in person, generally at
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EJBO Electronic Journal of Business Ethics and Organization Studies Vol. 10, No. 1 (2005)
the beginning of routine departmental meetings, by an adminis- effective leadership was found to be significant across many set-
trative official of the organization, and were requested to answer tings (Bass, 1998). I used the MLQ Form 5x of Bass and Avolio
the surveys and return them immediately. Other respondents (1991) to measure transformational leadership. The Question-
were sent the surveys through inter-departmental mail and naire had 37 items to measure the four factors of transforma-
completed surveys were returned through the same medium to tional leadership—8 items for charismatic leadership, 10 items
the administrative official. All responses were anonymous, and each for inspirational leadership and intellectual stimulation,
this was made clear to every respondent. and 9 items for individualized consideration. Subordinates
The sample of 100 leaders was drawn from nurse manag- were requested to answer the MLQ by rating how frequently
ers. The managers were randomly chosen and were requested to their current immediate supervisors have displayed the behav-
fill in the Value Survey (Rokeach, 1973) to measure their value iors described, using a five-point scale (0=Not at all; 1=Once
systems. A majority of managers surveyed had been with the in a while; 2=Sometimes; 3=Fairly often; 4=Frequently if not
organization for at least 7 years. The median age of the manag- always). A separate score for each of the four factors of trans-
ers surveyed was 42 years. Of the 96 managers who mentioned formational leadership was obtained. The Cronbach’s Alpha for
their gender, 71 were female and 25 were male. A subordinate items within each factor group was at least 0.9. The mean of
of each of the managers surveyed was then randomly chosen to the items in each factor group was taken as the measure of that
answer the Value Survey (Rokeach, 1973) and the leadership factor. Correlations between the four factors were not less than
questionnaire. The questionnaires handed over to subordinates 0.85. The mean of the four factors was taken as the measure of
were coded to ensure pairing of each subordinate’s response with transformational leadership.
his or her manager later. A manager had an average of 10 sub- Leader-member exchange. I used the 7-item scale developed
ordinates from whom one subordinate was randomly chosen. by Graen, Novak, and Sommerkamp (1982) for measuring
Of the 99 subordinates who mentioned their gender, 73 were LMX. This scale appears to provide the soundest psychomet-
female and 26 were male. A majority of subordinates surveyed ric properties of all available LMX measures (Gerstner & Day,
were at least 30 years old, and had been with the organization 1997). I used a 4-point Likert scale for my study.
for at least 4 years. 78% of the respondents reported that they Perceived effectiveness. Bass (1985) used a four-item scale
had been working with the manager they were rating, for not for measuring subordinates’ assessment of their leader and
less than 1 year. work unit effectiveness. A slightly modified version of these
four items was used in this study. The four items were: (a) How
would you classify the overall work effectiveness of your unit?
Measures (b) Compared to all other units you have ever known, how do
you rate your unit’s effectiveness? (c) How effective is your su-
Rokeach’s (1973) Value Survey was used for measuring the pervisor in meeting the job-related needs of subordinates? (d)
value systems of leaders and subordinates. Rokeach’s Survey is How effective is your supervisor in meeting the requirements
the most commonly used instrument that is capable of accom- of the organization? Subordinates gave their responses to each
modating all possible social values. The Value Survey has been of the four items on a five-point scale (0=Not effective; 1=Only
found to be both reliable and valid (Rokeach, 1973; Schwartz slightly effective; 2=Effective; 3=Very effective; 4=Extremely
& Bilsky, 1990). The Survey uses an ipsative (rank order) design effective). The mean score on the four items was taken as the
and has two lists of values arranged alphabetically—the first list measure of perceived effectiveness.
consisting of 18 terminal values and the second list consisting Satisfaction of subordinate. Subordinate’s satisfaction with
of 18 instrumental values. Each value is presented along with leader was measured by having subordinates respond to the two
a brief definition in parenthesis and respondents are asked to items (Bass, 1985): (a) In all, how satisfied are you with your
arrange the values in each set in order of importance to and as supervisor? (b) In all, how satisfied are you with the methods
guiding principles in their life. The value systems were thus ob- of leadership used by your supervisor for getting your group’s
tained for each leader, and for one subordinate of each leader as job done? The subordinates’ responses were recorded on a five-
consisting of two components—one terminal value system and point scale (0=Very dissatisfied; 1=Somewhat dissatisfied;
one instrumental value system. 2=Neither satisfied nor dissatisfied; 3=Fairly satisfied; 4=Very
Value system congruence. Similarity between two profiles satisfied). The mean score on the two items was taken as the
can be calculated by treating the two sets of observations as two measure of satisfaction.
vectors. The index of similarity would then be given by the co- Extra effort. Extra effort from subordinates as a result of
sine of the angle between the two vectors, which is the same leadership behaviors was measured using the three items: (a)
as the Pearson product-moment correlation between the vec- He/she motivates me to do more than I thought I could do; (b)
tors. The correlation between a subordinate’s rank order and his He/she heightens my motivation to succeed; (c) He/she gets
or her leader’s rank order was taken as the index of leader-fol- me to do more than I expected I could do (Bass, 1985). Sub-
lower value system congruence for that leader-follower pair. For ordinates were requested to answer these items by rating how
each leader-follower pair, I obtained two scores for the index frequently their current immediate supervisors have displayed
of congruence—an index of terminal congruence and an index the behaviors described, using a five-point scale (0=Not at
of instrumental congruence. The relationships of terminal con- all; 1=Once in a while; 2=Sometimes; 3=Fairly often; 4=Fre-
gruence and instrumental congruence with other variables were quently if not always). The mean score on the three items was
studied separately. taken as the measure of extra effort.
Transformational leadership. Bass (1985) developed the Intention to quit. Subordinate’s intention to quit the organi-
Multi-factor Leadership Questionnaire (MLQ) to measure the zation was measured using the three items: (a) I think often
factors in transactional and transformational leadership. Sev- about quitting my job; (b) I intend to search for a new job soon;
eral studies (Bycio, Hackett & Allen, 1995; Howell & Avolio, (c) I intend to quit my job soon. The subordinates’ responses
1993) have revealed high validity for the MLQ. The relation- were recorded on a five-point scale (0=Strongly disagree;
ship of high transformational leadership scores on MLQ with 1=Slightly disagree; 2=Neither agree nor disagree; 3=Slightly
17 http://ejbo.jyu.fi/
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