Whether in business, politics or some other position of popular authority, most leaders use a combination of established leadership styles. These modes of leadership generally fall into one of the five following categories:

  • autocratic
  • democratic
  • laissez-faire
  • transformational
  • transactional

In the context of running a start-up, leadership style will influence corporate culture, motivate (or de-motivate) employees, and increase or decrease power of influence. It is important to make use of a leadership style that is consistent with the goals and activities of your company.

Autocratic leadership

Leading as an autocrat can be likened to running a dictatorship with a sole decision-maker whose directives are obeyed unquestioningly. Power and authority are highly concentrated and autocratic leaders are typically concerned with task accomplishment rather than the happiness of those under their command. Often, the autocratic leader is seen to maintain considerable social“distance” from his or her constituency, and tends to motivate followers by fear of punishment rather than by anticipation of rewards.

Autocratic leadership is an asset when a company employs a large, inexperienced staff, or many who are untrained in their jobs. Autocratic leadership is best employed when managing larger groups, when involved with high-volume production operations, or when detailed instructions are necessary. Autocratic leadership is also an asset when facing serious time constraints or a crisis situation, or when work must be coordinated across disparate groups.

There are drawbacks to the autocratic leadership style. Autocratic leadership is commonly associated with high employee turnover. This leadership style tends to lower employee performance when complex tasks are involved, and it limits creativity. Employee morale is also negatively affected when autocratic leadership is used. The least appropriate conditions for applying autocratic leadership occur when high levels of employee creativity are needed or when a democratic leadership model has been established previously.

Famous autocratic leaders in business include Martha Stewart, Howell Raines and Leona Helmsley.

Democratic leadership

Democratic leadership is based on the principles of self-determination, inclusiveness, and equal participation in the decision-making process. This leadership style is characterized by the distribution of responsibility and the empowerment of others. Democratic leaders tend to be empathetic listeners who encourage open communication through all levels of the organization. Companies with democratic leaders tend to foster a positive and motivating corporate culture, empowering employees to perform at their highest levels of capability. These companies emphasize reward over punishment, they value teamwork, and they encourage participative decision-making. Democratic leadership is most appropriate when managing an experienced and professional team of employees. Industries that lend themselves to a democratic leadership style include those that leverage creativity and creative problem solving.

Democratic leadership breaks down, however, when a group faces a set of complex decisions, and when organizational agility is required to adapt to rapidly changing market conditions.

Carlos Ghosn is a successful business leader who employed democratic leadership principles and is credited for the remarkable turnaround of Nissan in 2000.

Laissez-faire leadership

Sometimes called“hands-off,” laissez-faire leadership is the least structured method of leadership. Here, decision-making authority is the least concentrated, and employees have significant autonomy. In fact, the leader’s role in this leadership model becomes peripheral, as employees manage their work independently. Work delegation is therefore spontaneous and uncoordinated. Laissez-faire leadership results in far less communication between employees and their leader(s), as well as less communication employee-to-employee.

Laissez-faire leadership tends to bring out the best in small groups of highly trained and highly motivated employees. In some cases, however, laissez-faire leadership can also be the product of an unskilled management team. In this case, laissez-faire leadership can result in employee dissatisfaction, poor productivity and lack of motivation.

Transformational leadership

The concept of transformational leadership is best described by James MacGreggor Burns as an ability to“influence followers to transcend personal concerns and transform themselves into agents of collective achievement.” This transformational process motivates employees to pursue of a vision established by the leader. Transformational leadership is often associated with charisma, inspiration, and intellectual stimulation. Transformational leaders apply a fairly consistent pattern of action in order to achieve their vision. Leadership author Gary Yuki summarizes these steps as follows:

  1. Together with employees, develop a challenging and attractive vision.
  2. Tie the vision to a strategy for its achievement.
  3. Fine-tune the vision and translate it into actions.
  4. Express confidence, decisiveness and optimism about the vision and its implementation.
  5. Realize the vision through small planned steps and small successes in the path to its full implementation.

Transformational leadership works best when applied to situations in which dramatic organizational change is required, possibly in response to a competitive action, a crisis, or a sustained decline in market share. Transformational leadership also works well with new companies where management needs to inspire employee loyalty and induce high productivity while working toward long-term payoffs.

Transformational leadership is less effective when companies have had a succession of different leaders in a short time, when the corporate culture inspired through transformational leadership is significantly at odds with prevailing sentiments at the company, and when a company is performing extremely well and a“transformation” is unwarranted.

Sam Walton, founder of Walmart, exemplifies a transformational leader. Other examples could include Steve Jobs of Apple, and Jack Welch of GE.

Transactional leadership

Transactional leadership is based on the premise that employees are motivated by a system of punishment and reward. Employees are assigned specific, well-defined tasks and are expected to execute these tasks precisely as agreed.

Completing tasks as assigned leads to rewards and reinforcement of the successful performance. These rewards can be material (such as enhanced job security, a bonus or other award). Non-material rewards are also used by transactional leaders. These rewards may include positive feedback, recognition and praise. Failure to perform tasks as assigned can produce negative feedback in the form of disappointment, dissatisfaction and disapproval, and can bring about disciplinary action or material punishment.

Transactional leadership is useful when company operations require that work be carried out exactly as prescribed. The transactional style of leadership is less suited for work environments that require creativity or dynamic adaption to changing market conditions.

Transactional leadership is a common form of leadership, but it is mostly applied by middle-managers rather than company CEOs. Most leaders who make use of the transactional leadership mode do so in combination with other leadership methods.

Summary chart

Leadership style Decision-making control Source of motivation When to use
Autocratic Tightly centralized Fear of punishment Large, inexperienced staff
Democratic Decentralized Opportunity to participate Experienced and professional staff
Laissez-faire Distributed Relies on self-motivation Highly trained and highly self-motivated staff
Transformational Moderately centralized Inspiration Dramatic organizational change required
Transactional Centralized Rewards Staff needs to carry out tasks exactly as ordered

References

Burns, J.M. (Ed.), et al. (2004). The Encyclopedia of Leadership. Sage Reference and Berkshire Publishing Group.

Burns, J.M. (1978). Leadership. Harper Collins.

Yukl, G. (1999). An evaluation of conceptual weaknesses in transformational and charismatic leadership theories. Leadership Quarterly, 10, 285-305.