Mar 13 2006

The Effect of Transformational Leadership at Credit Unions

We know leaders have an impact on individual and organizational performance, but how? Existing research1 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 followersbelieve they are capable of accomplishing and exceeding in performing required tasks.

The Filene Research Institute was curious to know if this dynamic holds true in credit unions. So, we set out to analyze the impact of credit union CEO leadership behavior on organizational performance. This report confirms what previous studies discovered: “transformational” CEOs have a positive impact on their direct reports’2 effectiveness and satisfaction, which, in turn, improves the credit union’s performance. Specifically, we discovered the following:

  • CEOs who exhibit transformational leadership behaviors have greater goal agreement with their direct report vice presidents (VPs) than CEOs who do not exhibit transformational leadership behaviors
  • Greater goal agreement between the CEO and direct reports improves the VPs’ satisfaction with the CEO and their commitment to the credit union
  • VPs’ increased satisfaction with the CEO leads to greater job performance
  • Greater goal agreement among the CEO’s direct reports has a positive impact on credit union performance