Mar 13 2006

The Effect of Transformational Leadership at Credit Unions

Report  
Number  
114

This report analyzes the impact of credit union CEO leadership behavior on organizational performance. In particular the difference a transformational leader versus a transactional leader can make. 

    Amy Colbert
    University of Notre Dame
    Amy Kristof-Brown
    University of Iowa
    Murray Barrick
    University of Iowa
    Report Number 114

    Executive Summary

    We know leaders have an impact on individual and organizational performance, but how? Existing research reveals that “transformational leaders” motivate followers to perform beyond expectations, while “transactional leaders” motivate followers to perform as expected. Recently, researchers began examining how transformational leadership behavior produces healthier performance among followers. Early evidence shows that transformational leaders enhance trust, which in turn improves the performance of the organization. Transformational leaders also appear to raise the confidence of followers, so that followers believe they are capable of accomplishing and exceeding in performing required tasks.

    What is the research about?

    This research examines the process through which the behavior of transformational leaders may work: greater agreement on and common understanding of goals among followers. This process was examined at two levels. First, we focus on the CEO and each direct report VP, each pair being called a “dyad.” We seek to answer the following questions:

    • Do CEOs who exhibit more transformational leadership behavior have greater goal agreement with individual VPs?
    • If so, does such greater goal agreement increase the VP’s job satisfaction, commitment, and performance?

    We also focus on the effect of CEO transformational leadership on the senior management team as a whole. Specifically, we ask these questions:

    • Do senior management teams led by CEOs exhibiting high transformational leadership behavior have greater CEO-team goal agreement?
    • Do senior management teams with high levels of goal agreement achieve higher levels of organizational performance?

    What are the credit union implications?

    The authors of this study shed considerable light on the notoriously tricky subject of leadership. The researchers examined a topic of intense interest to credit unions, and furthered some important conclusions about how CEO leadership behavior can influence executive and organizational performance. While a transformational leader may not be able to single-handedly take the organization to the next level, that leader's transformational behavior creates the type of environment necessary to transform the performance of the executive team and, as a result, the credit union.