These Three Leadership Styles Can Define a Company’s Culture

by Daniel Hannig

Think back to your old managers. Maybe one boss was like a strict military general who expected orders to be followed without question. Perhaps there was the boss great at being liked – but not so great at making tough decisions. Or maybe you had a manager so stingy with praise that hearing “good job” for the first time felt better than receiving a big bonus. Leadership styles vary, yet they all play a very big role in defining company culture. Understanding different leadership styles – and knowing when to use each style – goes a long way in improving company culture. Want to learn more about this topic? Download our Employee Engagement ebook

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Ideally, a company’s culture comes from somewhere in between a top-down and bottom-up approach. In many cases, however, a large part of a company’s culture comes from top to bottom. In these cases, leadership style is a critical factor.

How managers behave trickles down to the other employees. You’ve probably noticed this on the surface. A buzzword used by a higher up, for example, spreads through the company quickly and makes a small impact on company culture. On a deeper level, a CEO or founder with a particularly strong personality makes a company in his or her own image. How managers behave is how the company’s culture is defined – for better or for worse.

Leadership styles can lead to incredible success or it also can lead to disaster. To avoid the latter, focus on your own style and how it can affect the company culture around you. A thorough understanding of the styles can go a long way in changing the company culture for the better.

The Three Leadership Styles

For all the different types of bosses that are out there – both the good and the bad – researchers have been able to break down leadership styles into three distinct categories. There are plenty of subcategories and hybrids of said styles, but the big three are as follows:

Transactional leadership

Transactional leadership is an evolution of what was once known as authoritarian, which was too strong of a word. Here, the leader’s authority is clearly defined and so are the tasks. Creativity is sometimes a victim of this style, but that’s not necessarily always the case. This is arguably the most common form of leadership, as it’s the most intuitive and clear.

Transformational leadership

Transformational leadership occurs when the leader is passionate, emotionally intelligent and often charismatic. Through this leadership style, employees are empowered not only to help the company achieve its goals, but also personally improve. The employee engagement is sky-high. Research finds this to be an effective style that leads to increased satisfaction levels amongst employees.

Laissez-faire leadership

Laissez-faire leadership may sound a little like an oxymoron. This is a hands-off leadership style where there is little actual managing and lots of delegation. Team members work on their own with little guidance. This might not sound like too effective of a style, but you might be surprised that it can work in some situations.

Out of all of them, doesn’t transformational leadership sound the best? It may, in fact, be superior, but each of these leadership styles has their own plusses and minuses depending on the situation. By understanding the three types in full, you can understand what sort of style is needed according to the situation.

Transforming Company Culture

Who wouldn’t want to be a transformational leader? Think about it: You have happy employees, a motivated work environment and respect from all those around you. These are the things people dream of when leading a team. It is certainly not a bad thing to have in almost every case – but there are times when transformational leadership isn’t always effective.

Imagine a once-great company doing poorly. The founder/CEO built a great workforce and earned their respect thanks to charisma and an infectious feeling of optimism. The company culture was perfect, with everyone working along and a positive can-do feeling prevalent through the company. Now, with the business declining, tough decisions need to be made. Employees know this. They’re dreading the news and are awaiting the answer. However, the founder’s attitude hasn’t changed. She’s just as positive and optimistic as before. In her mind, she’s trying to keep morale and trying to preserve the great company culture. In the employees’ minds, she’s ignoring reality and their fear.

This is a bit of a generalization, but in times of turbulence, people want a leader who can roll up their sleeves and make tough decisions. More platitudes only make the problem worse. They want comfort regardless of how tough the path up ahead may be. If tough decisions are being made fairly, they’ll follow the leader. Transactional leadership, in this case, can be more effective.

When Laissez-Faire Leadership Works

Now, what good can laissez-faire leadership possibly be? Nobody wants a micro-managing boss who’s always hovering around, but wanting some level of guidance and feedback are natural desires. However, there are situations where this style can be effective in both generating business success and creating a rewarding company culture.

A well-known example can be seen in Valve, a game developer who created the enormously successful Steam platform for PC games. While the multi-billion-dollar company has its share of executives and management, the company has a boss-free structure. Employees, who are largely programmers, are free to work on the projects they find most interesting. Employees pitch their ideas to other employees to get them on board for their projects. A good idea can achieve a critical mass of support to become a viable product. An unappealing idea unable to generate support dies on the vine.

This type of laissez-faire isn’t for everyone. Some people who worked at the company hated it and the structure has received its share of criticism. Many people, however, love this leadership style. These employees were free to pursue projects they were passionate and tackle the problems they found most interesting. For these types of people, this hands-off approach was a dream come true.

Leadership Styles in Action

So what kind of leadership style do you and your fellow managers have? Don’t worry if transformational leadership doesn’t seem to describe your style. What’s more important is being aware of what’s effective in your situation and with your employees.

To foster a strong company culture, smart managers have to know which styles to deploy and when. Forcing a leadership style into a situation where it doesn’t work can harm company culture. Knowing what’s appropriate, however, can have a dramatic positive impact on the culture.


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