Northouse, Leadership 9e
SAGE Publishing, 2022
Lecture Notes
Chapter 7: Leader–Member Exchange Theory
Learning Objectives
7-2 Explain how leader–member exchange theory works.
7-4 Discuss the weaknesses of the leader–member exchange theory.
7-5 Recognize the applications of the leader–member exchange theory.
Annotated Chapter Outline
I. Description
A. While other theories emphasize leadership from the point of view of the leader or the
follower and context, leader–member exchange (LMX) theory conceptualizes leadership
as a process that is centered on the interactions between leaders and followers.
i. Dyadic relationship: A two-party bidirectional relationship.
a. Dyad of a leader and a follower is the focal point of LMX.
ii. Before LMX theory, researchers treated leadership as something leaders did
toward all of their followers.
a. Leaders were assumed to treat followers collectively, using an average
leadership style.
B. Early Studies
i. Exchange theory was originally called vertical dyad linkage (VDL) theory.
a. A leader’s relationship to the work unit as a whole was viewed as a
series of vertical dyads.
ii. Researchers found two general types of linkages:
a. In-group: Linkages based on expanded and negotiated role
iii. Group membership defined by:
a. How well a follower works with the leader.
b. How well the leader works with a follower.
c. Personality and other personal characteristics.
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e. In-group exchanges: Followers do certain activities that go beyond
iv. Benefits of in-group followers:
a. Receive more information, influence, confidence, and concern from
their leaders.
v. Out-group members are:
a. Less compatible with the leader.
b. Typically focused on coming to work, doing their job, and going home.
C. Later Studies
i. Initial studies addressed primarily the nature of the differences between in-
groups and out-groups, but a subsequent line of research addressed how LMX
theory was related to organizational effectiveness.
a. Specifically, the quality of LMX and its effect on organizational
outcomes.
ii. High-quality LMX results in positive outcomes for leaders, followers, groups, and
the organization in general.
a. Less employee turnover.
b. More positive performance evaluations.
c. Higher frequency of promotions.
d. Greater organizational commitment.
iii. LMX is consistently related to:
a. Job performance.
b. Overall and supervisory satisfaction.
iv. Recent research focuses on the processual nature of leader–member exchange
and how work relationships are co-constructed through communication.
a. Higher degrees of electronic communication between leaders and
followers resulted in more positive leader–member relationships.
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v. Interest in studying leader–member exchange has not diminished.
a. Most studies (70%) examine antecedents and outcomes of LMX.
vi. Atwater & Carmeli (2009) studied LMX and workplace energy and creativity in a
sample of employees in a variety of jobs in Israeli organizations.
a. Found perceived high-quality leader–member exchange was positively
vii. Ilies, Nahrgang, and Morgeson (2007) meta-analysis of LMX and employee
citizenship:
a. Citizenship behaviors are discretionary employee behaviors that go
beyond the prescribed role, job description, or reward system.
viii. LMX theory and empowerment:
a. Empowerment and LMX quality may have a slight synergistic effect on
job outcomes.
b. Quality of LMX is most significant for employees who feel
ix. Martin, Guillaume, Thomas, Lee, and Epitropaki (2016) meta-analysis supported
LMX predictions regarding job performance.
a. Positive relationship between LMX and task performance as well as
citizenship performance.
b. Negative relationship between LMX and counterproductive
D. Leadership Development
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i. Leadership development emphasizes that leaders should develop high-quality
exchanges with all of their followers rather than just a few.
a. Goal: To make all followers feel like part of the in-group.
ii. LMX theory also suggests leaders create networks of partnerships throughout
the organization.
a. Benefits organizational goals and leader’s own career progress.
iii. Three phases of high-quality LMX relationships:
a. Stranger phase: Interactions are rule-bound and contractual, with
lower-quality exchanges. Followers comply with the formal leader’s
directives to achieve economic rewards the leader controls.
b. Acquaintance phase: Begins with an offer by the leader or the follower
iv. Leaders seek special qualities in followers:
a. Enthusiasm.
b. Participation.
v. Followers also seek certain qualities in leaders:
a. Pleasantness.
b. Trusting nature.
c. Cooperativeness.
d. Agreeableness.
vi. Leader and follower performance are both predictive of relationship quality.
a. Leader extraversion does not influence relationship quality for
followers.
b. Follower agreeableness does not influence relationship quality for
leaders.
vii. Using traditional relationship-building and maintenance techniques such as
conflict management, shared tasks, and positivity in leader–member
relationships can shed light on how the leader and follower behaviors impact the
quality of these relationships.
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viii. Partnerships are transformational.
a. Assist leaders and followers in moving beyond their own self-interests
ix. Emotions critically contribute to high-quality leader–member relationships.
a. Cropanzano, Dasborough, and Weiss (2017) suggest that leaders and
followers experience different emotional, or affective, processes as they
progress through three stages—role taking, role making, and role
routinization—in LMX development.
d. Role routinization: LMX relationships have been formed and
maintained, but can change based on LMX differentiation.
e. LMX differentiation: The emotional responses of other organizational
members to the distribution of LMX relationships within the group.
f. Benefits of quality LMX: Preferential treatment, increased job-related
II. How Does LMX Theory Work?
A. Two ways LMX theory works:
i. Describing leadership.
ii. Prescribing leadership.
iii. Central concept of both is the dyadic relationship.
a. It is important to recognize the existence of in-groups and out-groups
within a group or an organization.
B. Working with an in-group rather than an out-group allows leaders to accomplish more
work in a more effective manner than they can accomplish working without one.
i. In-group members are willing to exceed their job description.
a. Includes a tendency towards innovation.
C. Differences in out-group member behavior:
i. Operate strictly within their prescribed organizational roles.
ii. Do not exceed job description.
iii. Leaders treat out-group members fairly and according to the formal contract, but
they do not give them special attention.
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D. LMX theory suggests leaders should create a special relationship with all followers,
similar to the relationships described as in-group relationships.
i. Leaders should offer each follower the opportunity to take on new roles and
responsibilities.
ii. Leaders should nurture high-quality exchanges with their followers, which
followers characterize as:
a. Mentoring.
E. A longitudinal study examining episodes in which leaders and members exchanged
resources found that when more resources were given than taken, the other party,
whether leader or follower, felt obligated to reciprocate.
i. When a leader gives more to a follower, it creates a “contribution surplus.”
a. Follower then tends to reciprocate that exchange.
ii. Over time, these contribution surpluses increase key metrics:
iii. A member’s obligation to reciprocate is related to the importance of a member
attaches to the leader–member relationship.
F. Key concept: Leaders should seek to make the entire work unit an in-group.
i. Use of technology may help by broadening avenues for developing positive
relationships.
a. Especially when workers are dispersed and worm primarily online.
ii. In addition, leaders should create high-quality partnerships with people
throughout the organization.
III. Strengths
A. It is a strong descriptive theory.
i. An intuitive way of describing work units, broken up into those who contribute
more and those who contribute less (or the bare minimum).
ii. In-groups and out-groups are an inevitable part of an organization.
iii. LMX theory’s acknowledgement of this dynamic validates our experiences of
organizational relationships.
B. It is the only leadership approach that makes the concept of the dyadic relationship the
centerpiece of the leadership process.
i. Other theories emphasize the characteristics of one actor within the dyad, but
rarely both.
a. Underscores that effective leadership is contingent on effective leader–
member exchanges.
ii. Studies indicate that LMX is a consistent explanation for why leadership
behaviors affect follower performance.
C. It directs our attention to the importance of communication in leadership.
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i. High-quality exchanges advocated in LMX theory are inextricably bound to
effective communication.
D. It provides an important alert for leaders.
i. Warns them to avoid letting their conscious or unconscious biases influence who
is invited into the in-group.
ii. Principles outlined in LMX theory serve as a good reminder for leaders to be fair
and equal in how they approach each of their followers.
E. It has proven to be a cross-cultural concept and has been studied in many cultures.
i. Rockstuhl, Dulebohn, Ang, and Shore (2012) examined the role of the national
culture of 23 countries as a moderator of LMX and organizational citizenship
behavior, justice perceptions, job satisfaction, turnover intentions, and trust in
the leader.
a. National culture does not affect the relationship of LMX with followers’
F. A large body of research substantiates how the practice of LMX theory is related to
positive organizational outcomes.
i. Related to these real outcomes in a literature review:
a. Performance.
b. Organizational commitment.
IV. Criticisms
A. Leader–member exchange in its initial formulation (VDL theory) runs counter to the
basic human value of fairness.
i. Generally, we have been taught from a young age that it is wrong to form in-
groups or cliques because they are harmful to those who cannot be a part of
them.
a. Taking in-groups and out-groups as a natural—or even beneficial—given
ignores the discrimination that may be occurring against the out-group.
ii. Supports the development of privileged groups in the organizations.
a. In so doing, it appears unfair and discriminatory.
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iii. Existence of in-groups and out-groups may have undesirable effects on the group
as a whole.
a. May cause members to engage in social comparisons that invoke
iv. Whether LMX theory actually creates inequalities is questionable.
a. If a leader does not intentionally keep out-group members “out,” and if
they are free to become members of the in-group, then LMX theory
may not create inequalities.
b. However, the theory does not elaborate on strategies for how one
gains access to the in-group if one chooses to do so.
B. The basic ideas of the theory are not fully developed.
i. Does not fully explain how high-quality leader–member exchanges are created.
a. Early studies suggested they were based on various aspects of
interpersonal compatibility, but the importance of subfactors was left
unexplored and unmentioned.
ii. Model of leadership development highlights the importance of role making,
incremental influence, and type of reciprocity), but does not explain how these
concepts function to build mature partnerships.
a. Strongly promotes building trust, respect, and obligation in leader–
follower relationships, but again fails to describe the means by which
these factors are developed in relationships.
iii. LMX may not truly be an exchange theory.
a. Bernerth, Armenakis, Feild, Giles, and Walker (2007) state that “the
theoretical underpinning of [LMX] is not based on the conceptualization
of social exchange defined by Blau (1964), but rather a role-making
iv. Improved theorization about leader–member exchange and its basic processes is
needed.
a. Specifically, understanding of how high- and low-quality relationships
develop in leader–member exchange.
b. Little agreement on how to define LMX.
C. Researchers have not adequately explained the contextual factors that may have an
impact on LMX relationships.
i. Since leader–member exchange is often studied in isolation, researchers have
not examined the potential impact of other variables on LMX dyads.
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a. Workplace norms and organizational cultural factors may have a
significant influence on LMX.
D. Insufficient measurement of leader–member exchanges in LMX theory.
i. No empirical studies have used dyadic measures to analyze the LMX process.
ii. Leader–member exchanges have been measured with different versions of
leader–member exchange scales and with different levels of analysis, so the
results are not always directly comparable.
a. The most common measure, LMX-7, is still only used in 66% of empirical
V. Application
A. LMX theory directs leaders to assess their leadership from a relationship perspective.
i. Sensitizes leaders to in-groups and out-groups developing in their organization.
ii. Suggests ways to build building strong leader–member exchanges with all
followers.
B. Applicable to all organizational levels.
i. On the lowest level of management, could even explain how line managers use a
select few workers to accomplish production quotas in their work unit.
C. Valuable in explaining how individuals create leadership networks throughout an
organization to help them accomplish work more effectively.
i. Person with a network of high-quality partnerships can call on many people to
help advance organizational goals.
D. Applicable to different organizational types.
i. Volunteer, business, education, and government settings all benefit from
interpretation with the LMX theory.
E. In summary, LMX theory tells leaders to be aware of how they relate to their followers.
i. Be sensitive to whether some followers receive special attention and some
followers do not.
ii. Be fair to all followers and allow each to become as involved as they want to be.
iii. Be respectful.
iv. Build trusting relationships with all followers.