Leader-Member Exchange, Transformational Leadership, and Value System

This study looked at the relationship between leader-member exchange (LMX), transformational leadership, and terminal and instrumental value system congruence between leader and follower, and their relative impact on four outcomes, using a sample of 100 pairs of managers and subordinates from a non-profit organization in the United States. The four outcomes studied are perceived effectiveness of leader and work unit, follower satisfaction with leader, follower’s motivation to put in extra effort, and follower’s intention to quit the organization. Results of correlation analyses indicate that LMX is positively related to transformational leadership, which in turn is positively related to terminal value system congruence. Results of regression analyses using the forward option show that transformational leadership is a stronger predictor of effectiveness, satisfaction, and extra effort than LMX and terminal value system congruence. LMX explains significant additional variance in satisfaction and extra effort than what is already explained by transformational leadership. LMX is a stronger predictor of follower’s intention to quit than transformational leadership and terminal value system congruence. LMX also mediates the relationship between transformational leadership and intention to quit. Instrumental value system congruence between leader and follower is not significantly related to any of the variables. Introduction The constant change that has become a part of life for many organizations highlights the increasing importance of transformational leadership. Superior performance is possible only by transforming followers’ values, attitudes, and motives from a lower to a higher plane of arousal and maturity (Bass, 1985). Transformational leadership is positively related to the amount of effort followers are willing to exert, satisfaction with the leader, ratings of job performance, and perceived effectiveness (Bass, 1998). Gerstner and Day (1997) argued that transformational leadership seems conceptually similar to the process of developing a unique exchange relationship that is central to Leader-Member Exchange (LMX). LMX has been found to be positively related to transformational leadership (Deluga, 1992). The relationship of leader-follower value system congruence with LMX and transformational leadership has however not been adequately explored. Burns (1978) considered transformational leadership to be a relationship wherein leaders and followers raise one another to higher levels of motivation. Their purposes, which might have started out as separate but related, become fused, leading to greater leaderfollower congruence in value hierarchies. Thus, value system congruence between leader and follower could be among the most important characteristics of transformational leadership. This paper is an attempt to look at how LMX and transformational leadership are related to value system congruence, and analyze the relative impact of all the three on four outcomes—perceived effectiveness of leader and work unit, follower satisfaction with leader, follower’s motivation to put in extra effort, and follower’s intention to quit the organization. Transformational Leadership According to Burns (1978: 4), “the result of transforming leadership is a relationship of mutual stimulation and elevation that converts followers into leaders and may convert leaders into moral agents” thus resulting in a transforming effect on both leaders and followers. Transformational leadership raises the level of human conduct of both leader and follower. Bass (1985) defined a transformational leader as one who motivates followers to do more than they originally expected to do. Transformational leaders broaden and change the interests of their followers, and generate awareness and acceptance of the purposes and mission of the group. They stir their followers to look beyond their self-interest for the good of the group. Palmer, Walls, Burgess, and Stough (2001) found that transformational leadership was positively related to the ability to monitor and manage emotions in oneself and others. Transformational leadership consists of four factors—charismatic leadership or idealized influence, inspirational leadership or motivation, intellectual stimulation, and individualized consideration. Followers have complete faith in charismatic leaders, feel proud to be associated with them, and trust their capacity to overcome any obstacle. Inspirational leadership involves the arousal and heightening of motivation among followers. Intellectual stimulation arouses in followers the awareness of problems and how they may be solved, and stirs the imagination and generates thoughts and insights. Individualized consideration involves giving personal attention to followers who seem neglected, treating each follower individually, and helping each follower get what he or she wants (Bass, 1998). Boehnke, Bontis, DiStefano, and DiStefano (2003) even found support for the claim that the main dimensions of leadership for extraordinary performance are universal. The transformational leadership model adds to the two fundamental leadership behaviors of initiation and consideration in explaining the variance in subordinates’ satisfaction and ratings of leader effectiveness (Seltzer & Bass, 1990). Studies have looked at the separate impact of the various components of transformational leadership on performance and attitudes. Leader’s vision and vision implementation through task cues affects performance and many attitudes of subordinates (Kirkpatrick & Locke, EJBO Electronic Journal of Business Ethics and Organization Studies Vol. 10, No. 1 (2005) 15 http://ejbo.jyu.fi/ 1996). Strength of delivery of vision by the leader is an especially important determinant of perceptions of leader charisma and effectiveness (Awamleh & Gardner, 1999). Task feedback interacts with charismatic leadership in affecting performance, and this relationship is mediated by subordinate’s self-efficacy (Shea & Howell, 1999). Cremer and Knippenberg (2002) showed that the interactive effect of leader charisma and procedural fairness on cooperation was mediated by their interactive effect on the sense of group belongingness. Shamir, Zakay, Breinin and Popper (1998) found that a leader’s emphasis on collective identity was related to subordinate’s level of identification with the leader. Kark, Shamir, and Chen (2003) found that identification with leader mediated the relationship between transformational leadership and follower’s dependence, and identification with the work group mediated the relationship between transformational leadership and follower’s empowerment. Leader-Member Exchange (LMX) The LMX theory occupies a unique position among leadership theories because of its focus on the dyadic relationship between leader and follower. LMX theory was originally referred to as Vertical Dyad Linkage (VDL) theory (Dansereau, Graen & Haga, 1975). According to VDL approach, leaders and followers develop dyadic relationships and leaders treat individual followers differently, resulting in two groups of followers—an in-group and an out-group. The in-group consists of a small number of trusted followers with whom the leader usually establishes a special higher quality exchange relationship. The out-group includes the remaining followers with whom the relationship of the leader remains more formal. These varying social exchange relationships are relatively enduring; they develop due to the leader’s limited time and energy, and inability to give equal attention to all followers (Gerstner & Day, 1997). Quality of leader-member exchange has been found to be positively related to follower’s satisfaction, organizational commitment, role clarity, performance ratings given by leaders, and objective performance, and negatively related to role conflict and turnover intentions (Bauer & Green, 1996; Deluga, 1998; Gerstner & Day, 1997; Schriesheim, Castro, & Cogliser, 1999). Overall, results of studies suggest that having a high-quality relationship with one’s leader can affect the entire work experience in a positive manner, including performance and affective outcomes (Gerstner & Day, 1997). Cogliser and Schriesheim (2000) found that work group cohesiveness, organizational climate, and leader power were related to LMX. The development of relationships in a leader-follower dyad can also be looked at in terms of a life-cycle model with three possible stages (Graen & Uhl-Bien, 1991). The relationship begins with an initial testing phase and remains at the out-group level if it does not proceed to the next stage. If the relationship proceeds to the second stage, mutual trust, loyalty, and respect are developed. Some relationships proceed to a third stage wherein self-interest gives way to mutual commitment to the mission. According to Graen and Uhl-Bien (1991), this final stage corresponds to transformational leadership. LMX is conceptually described as an exchange process, making it appear to be a transactional leadership model, but it is not usually measured this way. Members of the in-group are not told what is expected in return for the rewards they are given as part of a high-quality exchange. Since leaders do not make explicit demands on followers in the form of harder work for these rewards, the relationship might be characterized as transformational. To the extent that LMX measures tap mutual respect, trust, and the overall quality of the working relationship, LMX is oriented toward transformational leadership. There is emerging support for the claim that LMX may be transformational, at least at certain times and under certain conditions (Gerstner & Day, 1997; Schriesheim, Castro, & Cogliser, 1999). Krishnan (2004) found that LMX and transformational leadership were positively related to each other. Dasborough and Ashkanasy (2002) argued that if prior interactions within the leader-member relationship have resulted in the members liking the leader, then members are more likely to consider the leader as truly transformational. Therefore, I hypothesized: Hypothesis 1. LMX would be positively related to transformational leadership. Leadership is a relationship between leaders and followers, and building this relationship requires an appreciation for the personal values of those who would be willing to give their energy and talents to accomplish shared objectives. Values form the very core of personality, and they influence the choices people make, the appeals they respond to, and the way they invest their time and energy (Posner & Schmidt, 1992). Values assume even more importance in the case of transformational leaders, since transformational leadership results in changing the needs and values of both leaders and followers. Burns (1978) held that transformational leadership is based on the role of conscious purpose drawn from values. Transformational leadership involves the uncovering of contradictions among values and between values and practice, and the realigning of values in followers. Value System Congruence Rokeach (1973: 5) defined a value as “an enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable to an opposite or converse mode of conduct or end-state of existence.” A belief concerning a desirable mode of conduct is an instrumental value and a belief concerning a desirable end-state of existence is a terminal value. Values may be thought of as internalized normative beliefs that can guide behavior. If a person values freedom as an end-state of existence, it means that he or she believes that freedom is preferable to slavery. Values can be conceptualized in two distinct ways—ipsative in which values are rank-ordered, and non-ipsative in which various values are measured independent of each other. A set of rank-ordered values is called a value system. Only the ipsative (rank-ordering) measurement model can capture the unique value configuration of an individual. That a person values happiness does not say much that is unique about that person, for most human beings value happiness. What matters most is how much a person values happiness in comparison with the other things that he or she values. If one knows that a person values happiness more than self-respect, one can have a more accurate picture of that person. Value systems are enduring and it is important to understand value systems because they make a difference in terms of how people feel about themselves and their work. Several studies have demonstrated empirically how value systems affect personal and organizational effectiveness (Meglino & Ravlin, 1998). Value systems have been found to predict various outcomes including shopping selections (Homer & Kahle, 1988) and weight losses (Schwartz & Inbar-Saban, 1988). Values influence job choice decisions, job satisfaction, and commitment ( Judge & Bretz, 1992). Blickle (2000) found that work values EJBO Electronic Journal of Business Ethics and Organization Studies Vol. 10, No. 1 (2005) 16 http://ejbo.jyu.fi/ predicted the frequency of use of influence strategies measured one year later. Value system congruence between leader and follower could be defined as the extent of agreement between the leader’s value system and the follower’s value system. Weiss (1978) found that people aligned their values with the values of their leader if they perceived their leader to be competent and successful. Transformational leadership is likely to enhance the value system congruence between leader and follower. Congruence in values between leader and follower forms the strategic and moral foundation of authentic transformational leadership (Bass & Steidlmeier, 1999). An important difference between LMX and transformational leadership is the fusion of goals of leader and follower. Burns (1978) considered the fusion of goals between leader and follower to be an essential component of transformational leadership. LMX on the other hand, even when it is a high quality exchange relationship or has reached the final stage of mature relationship, does not address the question of changing the goals or value systems of followers. A high quality relationship is not necessarily an engaging relationship that would result in a transforming effect on both leader and follower. High quality exchange relationship simply presupposes a clear mutual understanding of each other’s value systems and goals, and does not imply enhancing similarity in value systems. Krishnan (2004) found that transformational leadership mediated the relationship between LMX and value system congruence. He used a list of ten values and did not distinguish between terminal and instrumental values. The vision that a transformational leader has serves as a unifying force that facilitates the convergence of leader’s and follower’s thoughts, beliefs and values (Kirkpatrick & Locke, 1996; Shamir et al., 1998). Jung and Avolio (2000) found that transformational leadership was positively related to value congruence between leader and follower. They measured value congruence as the extent to which followers agreed with leaders’ values, and they did not distinguish between terminal and instrumental values. However, transformational leadership focuses on the joint purposes of leader and subordinate, and often results in transforming those purposes. Only the terminal values pertain to end-states of existence, and so the leadership that focuses on purposes will be related only to the terminal values. Hence, I hypothesized: Hypothesis 2. Transformational leadership would be positively related to terminal value system congruence between leader and follower.