Ethical values of transactional and transformational leaders

Ethical values of transactional and transformational leaders

Rabindra N Kanungo


Ethical leadership literature (Bass & Steidlmeier, 1999; Kanungo & Mendonca, 1996) suggests that authentic transformational leadership must be based on some moral foundation. Such literature is not as clear, however, on whether transactional leadership can have moral foundation as well. The paper argues that transformational and transactional leadership behaviours are judged to be ethical based on two different sets of values, motives, and assumptions. These values, motives, and assumptions are grounded in two types of ethical perspective for understanding the behaviour of the two types of leaders. Transformational leaders have an organic worldview and moral altruistic motives grounded in a deontological perspective. Transactional leaders, on the other hand, have an atomistic worldview and mutual altruistic motives grounded in a teleological perspective.


La litterature sur le leadership ethique (Bass & Steidlmeier, 1999; Kanungo & Mendonca, 1996) suggere que le leadership transformationnel authentique doit etre base sur des fondements moraux quelconques. Par contre, la litterature ne precise pas si le leadership transactionnel doit aussi avoir des fondements moraux. Cette etude demontre que les comportements de leadership transformationnels ainsi que transactionnels sont juges comme etant bases sur deux differents groupes de valeurs, motifs et suppositions en ce qui attrait a l’ethique. Ces valeurs, motifs et suppositions sont fondes sur deux types de perspectives ethiques de facon a comprendre le comportement des deux types de leaders. Les leaders transformationnels ont une perception organique du monde ainsi que des motifs moraux altruistes bases sur une perspective deontologique. A l’oppose, les leaders transactionnels ont une perception atomiste du monde et des motifs mutuels basis sur une perspective teleologique.

Every organization has a purpose and it is the desire to achieve this purpose efficiently and effectively that creates the need for leadership. Organizational leaders plan, organize, provide direction, and exercise control over organizational resources, material and human, in order to achieve the organization’s objectives. The main aim of leadership behaviour, however, is to influence organizational members’ actions because it is through the behaviour of the members that organizations’ goals are attained.

The analysis of leadership behaviour in organizations and the nature of leaders’ influence on followers has led researchers in the area to identify two major forms of leadership: transactional and transformational (Bass, 1997; Burns, 1978; Conger & Kanungo, 1998). A transactional leader is more concerned with the routine maintenance activities of allocating resources, monitoring, and directing followers to achieve task and organizational goals. A transformational leader, on the other hand, is more concerned with developing a vision that informs and expresses the organization’s mission and lays the foundation for the organization’s strategies, policies, and procedures. The transactional leader influences followers through the use of rewards, sanctions, and formal authority or position power to induce followers’ compliance behaviour. The transformational leader, on the other hand, uses influence strategies and techniques that empower the followers, enhance their self-efficacy and change their values, norms, and attitudes, consistent with the vision developed by the leader (Bass, 1985; Conger & Kanungo, 1998).

Although the two forms of organizational leadership have been researched extensively in the past two decades, the role of the morality of leadership behaviours and influence processes has only recently emerged as an issue (Bass & Steidlmeier, 1999; Kanungo & Mendonca, 1996). Both academic scholars and management practitioners recognize that all forms of leadership behaviour gain their legitimacy and credibility from the leader’s moral standing and integrity. When the leader’s moral integrity is in doubt, then all attempts by the leader to influence followers-however noble, well crafted, and articulated-fail to move them to achieve organizational objectives. Without ethical leadership, organizations lose their long term effectiveness and become soulless structures.

The presence of ethical leadership is often noticed in organizations, but its nature, dimensions, and relationship to transactional and transformational leadership forms have not been explored in depth. Some recent works (Bass & Steidlmeier, 1999; Kanungo & Mendonca, 1996) on transformational and charismatic leadership suggest that authentic transformational leaders’ (as opposed to pseudo-transformational and negative charismatic leaders) behaviours and influence strategies have to meet high moral or ethical standards. But the answer to the question of whether a transactional leader’s behaviours and influence strategies should require equally demanding ethical standards remains equivocal. In other words, while authentic transformational leaders who exert long term transformational moral influence over followers are seen to be providing ethical leadership, one is not sure whether transactional leaders can also provide such sustained moral influence in organizations. For instance, Bass and Steidlmeier (1999) discuss the moral components of transactional leadership by pointing out that the moral legitimacy of this leadership style “depends on granting some liberty and opportunity to others that one claims for oneself, on telling the truth, keeping promises, distributing to each what is due, and employing valid incentives and sanctions” (p. 185). But they also suggest that transactional leadership is “grounded in a worldview of self-interest,” and that “pursuit of self-interest is found wanting by most ethicists” (p. 185).

While Bass and Stiedlmeier (1999) find grounds for the moral legitimacy of the transactional leadership influence process within the worldview of self-interest, Kanungo and Mendonca (1996, p. 73) advocate that this type of influence is devoid of any moral legitimacy. They argue that transactional leaders, in order to serve their self-interest, use control strategies through the exchange of valued resources merely to induce compliance behaviour among their followers. Control strategies do not allow followers any opportunity for autonomy, self– determination, and self-development. The transformational leadership influence process, on the other hand, is considered to be ethical because transformational leaders use empowering rather than control strategies. Empowering strategies such as demonstrating exemplary behaviour, showing confidence in the follower’s ability, verbal encouragement to accomplish task objectives, and so forth increase the follower’s capacity for self-determination while pursuing the collective purpose embodied in the leader’s vision for the organization.

Burns (1978) makes the same point by suggesting that transactional leaders control their followers by catering to the followers’ lower order physical and social needs. Furthermore, these leaders “concentrate on method, technique and mechanisms rather than on broader ends and purposes” (Burns, 1978, p. 405) in order to satisfy the self-interests of organizational members, and thereby manage day-to-day organizational operations. The transformational leader, on the other hand, seeks to satisfy the followers’ higher order growth needs, transform the followers’ self-interest into collective concerns, and overall “engages the full person of the follower” (Burns, 1978, p. 4). For Burns, transformational leadership is “moral in that it raises the level of human conduct and ethical aspiration of both leader and led” (p. 20), and transactional leadership is not moral in that it is self-absorbing and manipulative.

In contrast to the views of Burns (1978) and Kanungo and Mendonca (1996), Keeley (1995) argues that the ethical justification for transformational leadership is not that clear; neither is the assertion that transactional leadership is devoid of a moral base. According to Keeley (1995), “unless leaders are able to transform everyone and create absolute unanimity of interests, transformational leadership produces simply a majority will that represents the interests of the strongest faction” (p. 77). Such leadership, then, may not always “protect the basic interest of the weak from the self-interest of the strong” (p. 78). This clearly poses a moral problem for transformational leaders. Transactional leadership, on the other hand, does not require from organizational members a “consensus on ends,” but rather a simple “consent to means-agreement on rules, rights, and responsibilities” (pp. 86-87) that serve their separate interests. This form of transactional influence can have a moral basis because it serves the interests of all parties concerned.

The controversy as outlined above regarding whether the two forms of leadership influence can have moral foundations and, if so, how they are similar or different from each other calls for some resolution. This paper attempts to achieve such a resolution by arguing that the two types of influence process have fundamentally different ethical understandings. The ethical justifications for the behaviours of transactional and transformational leaders can be understood better when viewed from two different ethical perspectives: the teleological and the deontological approaches. The paper therefore first identifies the dimensions of ethical leadership behaviour and then examines the moral foundations of transactional and transformational leadership by grounding them in the teleological and the deontological approaches respectively. In exploring the morality of the two leadership forms in terms of the two ethical approaches, the paper also identifies the implicit motives, values, and assumptions underlying leadership behaviours and influence processes.

Dimensions of Ethical Leadership

How can we judge a leader’s behaviour to be ethical or unethical regardless of whether the leader is exhibiting the transactional or transformational influence mode? The term “ethical” means that which is morally good or that which is considered morally right, as opposed to that which is legally or procedurally right. According to Thomas Aquinas, ethical nature of one’s behaviour should be judged on the basis of three factors: the motive of the actor which is the primary source of one’s behaviour, the manifest behaviour itself, and the social context in which the behaviour takes place (Kreeft, 1990). If we take these three factors into account, the leader, in order to be ethical, must engage in virtuous acts or behaviours that benefit others, and must refrain from evil acts or behaviours that harm others. Both Socrates and Plato considered virtuous acts to be the basis of morality (White, 1993). But these acts must stem from the leader’s altruistic rather than egotistic motives or intentions. Furthermore, in order to behave judiciously in a morally right manner, the leader must take into consideration the demands of the social context or situation he/she faces and the moral consequences or outcomes of his or her actions in the specific situation. For example, protecting an employee from a threat of dismissal because of employee incompetence is morally wrong, whereas protecting the employee from such threat caused by an arbitrary decision on the part of top management may be ethically justified.

In order to get all three factors morally right in leadership acts, leaders must pay attention to their own motives, their behavioural strategies and tactics of influence, and their worldviews that form the basis of interpreting the social situations with which they interact and the resulting outcomes. Above all, leaders’ personal moral development results from character formation or cultivation of values through the practice of harbouring altruistic intent, engaging in virtuous acts, and interpreting social situations consistent with their worldviews. Aristrotle emphasized the role of character formation through practice and habit while considering the nature of moral development of an individual. As White (1993) remarks, “by making our character, will, and intentions central elements of moral virtue, Aristrotle pointed out how critical it is to study our motivation and master the inner forces that could lead to moral compromises” (p. 4). Ethical leadership therefore manifests itself in three dimensions as depicted in Figure 1 (Kanungo & Mendonca, 1998). In ethical leadership, the motives, acts, and characters of leaders result in the moral development of both the leader and the followers, which in turn serve the interests of their organizations and society at large (Kanungo & Mendonca, 1996).

Given the nature of ethical leadership as described above, how does one justify the transactional and transformational influence strategies to be ethical? The answer to this question will be sought by first examining the two ethical perspectives and then analyzing the motives, values, and assumptions underlying the two forms of leadership influence.

Two Ethical Perspectives to Evaluate Leadership

In the business ethics literature (e.g., White, 1993), one finds two dominant approaches to evaluate the ethical nature of one’s conduct: teleological ethics and deontological ethics. According to teleological ethics, a leader’s actions per se have no intrinsic moral status. The moral status of these actions stems from their consequences. In any given situation, actions that produce larger benefits to a larger number of people are considered morally right. In this approach, hedonism (that which gives pleasure is good) and utilitarianism (greatest good for the greatest number) form the basis for ethical judgments (Melden, 1967; Mill, 1967 version). Teleological ethics is ends or outcomes oriented. As Keeley (1995) has pointed out, a transactional leader behaves in a moral way because such behaviour (i.e. seeking consent to means to achieve individual ends rather than seeking consensus on a single collective purpose) brings greatest satisfaction to the greatest number of people.

In contrast to the teleological perspective, deontological ethics considers a leader’s actions to have intrinsic moral status. An act is considered moral when it is performed with a sense of obligation or when it stems from a sense of duty guided by pure reason. Kant (trans. 1994), while advocating this approach, recommended that moral acts always treat human beings as an end and never simply as a means.

Treating people as ends requires seeing them as autonomous beings who are entitled to control their own fate and not to be deceived or manipulated. Actions that are consistent with the dignity and autonomy of moral agents are intrinsically good. Treating people simply as a means, however, is to regard them as something that we use for our own purposes without their full and free consent. Such actions are inherently wrong. (White, 1993)

The argument presented by Kanungo and Mendonca (1996) that transformational leadership that uses empowering strategies is ethical is consistent with the deontological perspective. Thus, teleological and deontological ethics provide two different criteria for judging the ethical character of the two types of leadership behaviour. This is explored further by relating the two ethical approaches to the motives, values, and assumptions of the two types of leaders.

Leader’s Motive for Transactional and Transformational Influence Strategies

The overarching motive for ethical leadership is the leader’s altruistic intent as opposed to egotistic intent (Kanungo & Mendonca, 1996). Leaders are truly effective in achieving organizational objectives only when they are motivated by a concern for others (organizational members and other stakeholders), when their actions are invariably guided primarily by the criterion of benefit to others even if it results in some cost to self. In deciding whether a leader is ethical, the fundamental expectation is that the leader will direct and guide organization members towards goals and objectives which will benefit the organization, its members, other stakeholders, and the society at large. It is only in the context of such benefits that leadership acts in the areas of planning, controlling, and coordinating are justified and assume moral meaning and significance.

The altruistic concern of leaders can be manifested in two principal ways. One, leaders can combine their altruistic concern with a concern for their own self-interest. In such a case, the resulting motive can be called utilitarian or mutual altruism. The motivational force of utilitarian altruism stems from an expectation that the leader’s behaviour will lead to mutually beneficial consequences. The other manifestation is the leader’s helping concern for others, which is prompted by a sense of duty toward others without any regard for self-interest. Often such duty-based helping concern causes considerable personal sacrifice or inconvenience to the leader. While acting out of a sense of duty, the leader is prepared to suffer the harmful consequences for him/her self. Sometimes, the leader knowingly causes harm to him/her self, a strategic move that convinces others of the leader’s unbending commitment to the organizational objectives. Uncompromising fast by Mahatma Gandhi to end violence in political agitations is a good example of such behaviour. The motive behind such behaviour can be categorized as genuine or moral altruism. These two forms of altruism, as distinguished from egotistic intent, are presented in Figure 2 (Kanungo & Conger, 1993).

The moral justification for transactional influence strategies is derived primarily from the mutual altruistic motive. In this mode of influence, transactional leaders use the power of their position or office, and rewards and sanctions under their control, to get followers to perform the required behaviour and demonstrate the desired commitment and loyalty. The leaders serve their personal interest (gain in power, status, material benefits) by making followers exhibit compliance behaviours and attitudes. Followers comply in order to gain valued rewards and to avoid possible sanctions from leaders in authority positions. Thus, both parties benefit from the transactional mode of influence used by the leader. According to teleological ethics, the final outcomes of mutual benefits resulting from the mutual altruistic motive and actions of the leader will be considered as ethical. However, the transactional mode of influence can be unethical if the leaders satisfy only their personal or egotistic interests (with the exclusion of followers’ interests) by making followers act like programmed robots.

The transformational influence strategies of a leader derive their moral justification from the moral altruistic motive. In the transformational mode, the leader’s objective is to change the followers’ core attitudes and values consistent with the leader’s vision for the organization. The leader strives towards a “consensus on ends” not by imposing his/her vision on the followers by coercion, but rather by creating an environment in which the followers can choose for themselves whether to subscribe to the vision. In fact, as Conger and Kanungo (1998) point out, a leader’s vision “must represent a shared perspective. To achieve this shared perspective, the leader articulates the vision by anchoring it in a set of deeply held values” of the followers (p. 195). This helps the followers to see the vision as a reflection of their own values rather than as an imposition from outside. Furthermore, the leader uses empowering strategies to increase followers’ self-efficacy beliefs and their capacity for self-determination. The influence processes in the transformational mode are designed by the leader to increase the followers’ self– growth, enhance their self-worth, and enable them to function as autonomous persons contributing to the achievement of organizational objectives. This is often achieved through considerable risk and self-sacrifice on the part of the leader. From a deontological perspective the leader’s moral altruistic motive is the manifestation of a sense of duty or obligation toward the followers.

Values and Assumptions Associated with Transactional (Utilitarianism) and Transformational (Moral Altruism) Leadership

Both mutual or utilitarian and genuine or moral altruism are acquired motives. Leaders develop these motives as a result of their past experience, training, and other forms of socialization. Through socialization practices in family, educational, religious, and other institutions, leaders acquire motives and associated self-cognitions or self-concepts. Internalized ethical norms (or values) resulting from socialization are a part of leaders’ self-cognitions. There are two types of ethical norms associated with altruistic motives: the norm of reciprocity and the norm of social responsibility. The reciprocity norm dictates that we do good to others who do good to us (Gouldner, 1960). The reciprocity norm forms the basis of the utilitarian altruism motive and the resource exchange strategy of the transactional leader. The norm of social responsibility refers to an internalized belief of a moral obligation to help others without any consideration of an expected personal benefit (Berkowitz, 1972; Schwartz, 1975). The social responsibility norm forms the basis of the moral altruism motive and the empowering strategy of the transformational leader. Clearly, the reciprocity and social responsibility norms are used respectively in teleological and deontological ethics for judging the moral status of the leader’s motives, strategies, actions and their outcomes.

The distinction between utilitarian and moral altruism raises the possibility that there may be two different sets of underlying assumptions (or worldviews) governing the leader’s assessment of the ethical nature of leadership behaviour. Normative standards or criteria used to judge the ethical nature of behaviour are derived from these assumptions. As mentioned above, the criteria used by transactional leaders to judge actions triggered by a utilitarian altruistic motive tend to be different from the criteria used by transformational leaders to judge behaviour induced by moral altruism.

What are these assumptions and how do they distinguish transactional from transformational leadership? As stated earlier, a leader’s self-concepts or self-cognitions are the products of socialization, and represent a set of assumptions relating to the self, dominant motives, values, and action orientations. As Cross and Markus (1991) point out, self-concepts are built “on a compository of life-span experiences, motivational states, and action orientations” (p. 230). Milton (1994) also suggests that self-concepts are formed on the basis of a set of beliefs or assumptions, values, and purposes. The criteria a leader uses for making moral judgements about various actions very much depend on the leader’s self– concepts.

Triandis (1994) has differentiated between two types of self-concepts, allocentric and idiocentric, that can result from past socialization. The transformational leader tends to be more allocentric and the transactional leader tends to be more idiocentric. The transformational leader is allocentric because he/she defines self in terms of relating to others, and considers group goals, group achievement, cooperation, endurance, and selfcontrol to be more important. An allocentric transformational leader has a “we” self-identity. The self is viewed more as an extended or embedded self by identifying it as linked to a collectivity (family, community, organization, nation etc.). The idiocentric transactional leader on the other hand, defines self more as an independent entity, the “I” or “me” self, clearly separated from other individuals. The idiocentric “me” self orientation of the leader is primarily concerned with protecting his/her personal interests as an individual (self-centric), whereas the allocentric “we” self orientation of the leader is mainly concerned with protecting the interests of the group, knowing that his/her own interests and the group interests are inseparable (socio-centric).

While relating to other people, the idiocentric transactional leader considers the self to be atomistic or separate from others, whereas the allocentric transformational leader considers the self as organic or inseparable from others. With the atomistic view of self, the transactional leader puts high value on personal independence (or complete autonomy) and protection of individual rights. On the other hand, with the organic view of self, the transformational leader puts more value on interdependence, conditional autonomy and meeting social obligations toward others. With an atomistic view of self, the transactional leader considers people’s relationships to each other in organizations to be contractual in nature. For such a leader, social and legal contracts form the basis of social interactions and exchange of resources among people. The leader’s and the followers’ personal goals and outcomes are achieved though social contract. A mutually beneficial contract, as opposed to a contract that benefits only one member in the exchange relationship, is considered ethical. The principle of utilitarianism or teleological ethics (an act is ethical if it promotes the greatest happiness of the greatest number) as advocated by Mill (1967), provides the moral justification for the mutually beneficial contracts that transactional leaders value. An allocentric transformational leader with an organic view of the self considers obligatory activities toward others as ideal forms of action or as a moral duty to achieve the common good. Thus, the nature of goals that a leader strives for are viewed as idealistic by the transformational leader whereas they tend to be viewed as purely pragmatic by the transactional leader.

The above discussion with respect to the assumptions about the nature of goals of a leader implies that for the idiocentric transactional leader the means and ends reflected in actions are judged with an outcome or a teleological orientation. Such a leader believes that ends justify means. “All is well that ends well” becomes the motto of the transactional leader. If the social contract ends in mutually beneficial results, then the means the leader has used are morally justified. The transformational leader, on the other hand, considers social obligations as his/her moral duty because they serve the higher purpose of benefiting relevant others (the group or organization from which the leader is inseparable) without any calculation of personal gain in return. This represents a deontological orientation that considers actions to be morally right when they stem from a sense of duty or obligation toward others. The transactional leader deals with other people simply as a means to achieve personal goals through the transaction of valued resources, whereas the transformational leader considers other people as ends in themselves and therefore attempts to transform their values, attitudes, and behaviour using empowering influence strategies. The foregoing is consistent with Kant’s categorical imperative (Bowie, 1998). As pointed out earlier, the interests or motives of the transactional idiocentric leader are self– centric, and the intents of the transformational allocentric leader are socio-centric. The associated ethical behavioural strategy to influence others is to frame the social contract, and to exchange resources in social interactions in the case of transactional leadership. This strategy is a manifestation of utilitarian or mutual altruism. In the case of transformational leadership, the behavioural influence strategy is to empower others by modeling or exemplary behaviour (Conger & Kanungo, 1998). This strategy is a manifestation of moral altruism.

To reiterate, the moral justification for transactional leadership comes from a teleological ethic or an ethic of purpose. As Brady (1996) states, “Human beings have purposes or ends…. To a teleologist, an act that promotes these purposes is moral, one that impedes them is immoral” (pp. 3-4). Brady also points out that in modern times “teleology has evolved into a kind of `democratic teleology’ known as ‘utilitarianism’ ” (p. 4) As indicated earlier, a transactional leader’s mutual altruistic motive and resource exchange strategy aim at utility maximization for both the leader and his/her followers. By contrast, a transformational leader follows a deontological ethic or an ethic of duty (Kant, trans. 1994). Pursuing an ethic of duty, a transformational leader does not look beyond the act to weight it against a purpose of maximizing benefits. The leader simply regards the act itself as his/her duty, regardless of its consequences for him/her. The leader’s duty-bound acts based on the moral altruistic motive to benefit others and the beneficial effects of these acts on followers become the moral justification for transformational leadership.

Finally, a transactional leader’s emphasis on utilitarianism and reciprocity norms as the basic criteria for judging the ethical nature of leadership behaviour leads him/her to focus on specific particulars of the leader-follower exchange situation. For a transactional leader, there are no universal invariant principles, policies, or goals applicable to all situations and at all times. The particulars of each situation have to be judged to determine the level of morality by examining the utility maximization achieved for both the leader and the followers. By contrast, a transformational leader always searches for invariant universal values or principles to guide his/her formulation of the ideal vision for the organization. The leader’s transformational influence strategy (through empowerment) is then guided by an ethic of duty. Universal principles and a deontological ethic provide stability of behaviour and reflect the personal integrity of the transformational leader across varied situations and across time.

To sum up, a transactional leader is more likely to use situational and teleological ethics whereas a transformational leader is more inclined to use universal and deontological ethics. Table 1 summarizes the distinction between the moral foundations of transactional and transformational leadership based on the leaders’ motives, values, and assumptions as discussed above.


In an attempt to resolve the controversy surrounding the moral foundations of transactional and transformational leadership, the paper suggested that the two types of leadership behaviours have to be judged for their moral standing by using two fundamentally different ethical perspectives. Teleological ethics provides the moral justification for transactional leadership behaviour and its associated motives, values, and assumptions.

Deontological ethics provides the moral justification for transformational leadership and its associated motives, values, and assumptions. This way of looking at the moral foundation of the two forms of leadership behaviour opens the door to further research exploration in three main areas. First, empirical validation of the association between teleological ethics and transactional leadership, and between deontological ethics and transformational leadership as presented in Table 1 is necessary. Further research efforts should be directed toward exploring the motives, values/norms, and self-concepts or assumptions of transactional and transformational leaders. Second, the empirical validation of the moral foundations of leadership behaviour will naturally push future research in the direction of identifying appropriate leadership training and education in ethics. For example, training and education can bring about changes in motives, values, and worldviews of leaders in order to prepare them for ethical leadership in either the transactional or the transformational mode. Finally, future research might examine the impact of such leadership training and education not only on the moral development of the leaders, but also on the moral development of the followers. It is important to understand how followers develop under leaders who are altruistic (as opposed to egotistic), who value reciprocity and obligations (as opposed to self-interest), and who are allocentric (as opposed to idiocentric).


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Rabindra N. Kanungo*

McGill University

* Faculty of Management, McGill University, 1001 Sherbrooke Street West, Montreal, QC, Canada H3A 1G5. E-mail:

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