Close the skill gap with the Financial Modeling & Valuation Analyst (FMVA)® Certification >> Enroll today and save!

Leadership Theories

Schools of thought explaining how and why certain individuals become leaders

What are Leadership Theories?

Leadership theories are schools of thought brought forward to explain how and why certain individuals become leaders. The theories emphasize the traits and behaviors that individuals can adopt to boost their own leadership abilities.

 

Leadership Theories

 

Early studies on the psychology of leadership pointed to the fact that leadership skills are inherent abilities that people are born with. It was not until recently that formal leadership theories emerged, despite leadership becoming a concept of interest at the beginning of time.

 

Leadership at a Glance

A leader is crucial to the success of every team. Take an orchestra, for instance, one that consists of all the best musicians in the world but lacks a conductor. Even though every member of the orchestra can play perfectly by themselves, they will only produce an incompatible melody in the absence of a conductor. The same concept applies to communities, companies, and countries. Without a leader, nothing will ever run smoothly.

So, what makes leaders who they are? Why are some people elected as managers and presidents while the rest remain followers? Leadership theories were developed to find answers to these questions.

 

Key Leadership Theories

 

1. Great Man Theory

According to the Great Man Theory (which should perhaps be called the Great Person Theory), leaders are born with just the right traits and abilities for leading – charisma, intellect, confidence, communication skills, and social skills.

The theory suggests that the ability to lead is inherent – that the best leaders are born, not made. It defines leaders as valiant, mythic, and ordained to rise to leadership when the situation arises. The term “Great Man” was adopted at the time because leadership was reserved for males, particularly in military leadership.

 

2. Trait Theory

The Trait Theory is very similar to the Great Man Theory. It is founded on the characteristics of different leaders – both the successful and unsuccessful ones. The theory is used to predict effective leadership. Usually, the identified characteristics are compared to those of potential leaders to determine their likelihood of leading effectively.

Scholars researching the trait theory try to identify leadership characteristics from different perspectives. They focus on the physiological attributes such as appearance, weight, and height; demographics such as age, education, and familial background; and intelligence, which encompasses decisiveness, judgment, and knowledge.

 

3. Contingency Theory

The Contingency Theory emphasizes different variables in a specific setting that determine the style of leadership best suited for the said situation. It is founded on the principle that no one leadership style is applicable to all situations.

Renowned leadership researchers Hodgson and White believe that the best form of leadership is one that finds the perfect balance between behaviors, needs, and context. Good leaders not only possess the right qualities but they’re also able to evaluate the needs of their followers and the situation at hand. In summary, the contingency theory suggests that great leadership is a combination of many key variables.

 

4. Situational Theory

The Situational Theory is similar to the Contingency Theory as it also proposes that no one leadership style supersedes others. As its name suggests, the theory implies that leadership depends on the situation at hand. Put simply, leaders should always correspond their leadership to the respective situation by assessing certain variables such as the type of task, nature of followers, and more.

As proposed by US professor Paul Hersey and leadership guru Ken Blanchard, the situational theory blends two key elements: the leadership style and the followers’ maturity levels. Hersey and Blanchard classified maturity into four different degrees:

  • M1 – Team members do not possess the motivation or tactical skills to complete necessary jobs.
  • M2 – Team members are willing and ambitious to achieve something, but they lack the necessary ability.
  • M3 – Team members possess the skills and capacity to accomplish tasks, but they’re not willing to take accountability.
  • M4 – Team members possess all the right talents and are motivated to complete projects.

According to situational theory, a leader exercises a particular form of leadership based on the maturity level of his or her team.

 

5. Behavioral Theory

In Behavioral Theory, the focus is on the specific behaviors and actions of leaders rather than their traits or characteristics. The theory suggests that effective leadership is the result of many learned skills.

Individuals need three primary skills to lead their followers – technical, human, and conceptual skills. Technical skills refer to a leader’s knowledge of the process or technique; human skills means that one is able to interact with other individuals; while conceptual skills enable the leader to come up with ideas for running the organization or society smoothly.

 

Key Leadership Theories (diagram)

 

Applying Leadership Theories at the Workplace

To a great extent, leadership theories have helped form and shape the kind of governance that exists today. Many aspects of these theories can be applied to help one improve his or her leadership skills.

 

1. Maximize Your Strengths

As proposed by the Trait Theory, effective leadership depends on the traits that one possesses. Leaders should strive to focus on their strengths rather than their weaknesses. The strengths vary from one leader to another and may include:

  • A strong will is crucial to staying resilient and seeing leaders through difficult times. No matter how challenging the situation may be, a strong-willed leader is able to find inner strength and carry on until he overcomes all challenges.
  • A decisive nature is another strength that some leaders possess. Decisiveness means that when others may be perplexed, a leader can calmly assess the situation and choose one action to unite everyone by. But, since they may not always make the right decisions, they must also be willing to learn from their mistakes.

 

2. Be Inclusive Leaders

Some of the more complex situational theories emphasize focusing on people. It means that they acknowledge individual people to be their greatest assets and not just mere numbers in their workforce. Being an inclusive leader requires that one constantly involves other people in their leadership, whether it be by always welcoming the feedback of others or delegating more responsibility to others than other forms of leadership.

 

Key Takeaways

There are numerous ways of defining leadership. Some leadership theories attempt to explain what differentiates a leader, while some explain how great leaders come to be. The Great Man Theory believes that the inherent traits that one is born with contribute to great leadership. Situational Theory recommends leaders to adopt a leadership style depending on the situation at hand, while the Behavioral Theory is all about the learning the skills necessary to become a good leader.

Leadership theories don’t only exist in history. They are concepts with actionable advice that can be adopted by many, from executive managers to community leaders and government officials.

 

Related Readings

Thank you for reading CFI’s guide to leadership theories. CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To continue your development as a world-class financial analyst, these additional resources will be helpful:

  • Adaptive Leadership
  • Impostor Syndrome
  • Interpersonal Intelligence
  • Leading by Example

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!