What Is The Leader-member Exchange Theory? The Leader-member Exchange Theory In A Nutshell

The leader-member exchange theory was first proposed in a seminal paper by Fred Dansereau, George Graen, and William Haga in 1975. In the paper, entitled A Vertical Dyad Linkage Approach to Leadership within Formal Organizations, the authors proposed a new, dyadic leadership approach. Here, “dyadic” can best be described as the interaction between two individuals. The leader-member exchange (LMX) theory is a dyadic, relationship-based leadership theory.

Understanding the leader-member exchange theory

The leader-member exchange theory revolves around the notion that leaders sometimes interact differently depending on the subordinate. With some subordinates, the relationship may be characterized by trust, personal involvement, and investment. Conversely, other relationships involve less investment and trust with more formal, quid pro quo transactions.

Both these relationships comprise the theoretical basis of the similar social exchange theory (SET), which argues social behavior is the result of an exchange process designed to maximize benefits and minimize costs.

The three stages of the leader-member exchange theory

Further research into the LMX theory in 1987 suggested leader-member exchange could be explained in three stages:

1 – Role-taking  

When a new employee first joins a team, the leader observes them in an attempt to identify their talents, motivations, and general attitude toward the work itself. This stage may last for hours or days, depending on the circumstances.

2 – Role-making 

During the second stage, the new employee performs various project tasks and assumes some responsibility. The leader may pay particular attention to the way a new employee handles difficult, stressful, or problematic situations. 

In so doing, the leader consciously or subconsciously begins categorizing the subordinate into one of two groups:

  1. In-group – the members of the in-group are those the leader trusts the most. With proven skill or competence, they are rewarded with promotions, learning opportunities, favorable work schedules, and meaningful growth opportunities. They also receive more one-on-one time with the leader.
  2. Out-group – conversely, the members of the out-group are considered incompetent or otherwise untrustworthy. They are not afforded the same incentives, resources, or access to management.

3 – Role routinization

In the final stage, the leader and their subordinates establish routine and habitual ways of operating based on the categories mentioned above. 

This is good news for the in-group, who continue to enjoy a strong working relationship with their superiors. 

The implications for out-group members are more significant because initial impressions are difficult to change. With no access to leadership or incentives designed to motivate performance, these employees act in ways that reinforce a self-fulfilling prophecy.

Ultimately, the leader-member exchange theory encourages leaders to check their biases. The theory also suggests it is incumbent on the leader to initiate and develop better relationships with those in the out-group. 

These actions increase the likelihood a subordinate will reciprocate the goodwill shown, forming a relationship more conducive to personal and organizational success.

Leader-member exchange theory example

Now, let’s take a look at a hypothetical leader-member exchange theory example.

Hotel valet manager

Valet manager Mitchell is 25 years of age and has 13 valet attendants working under him at a well-known hotel in New York City. 

Mitchell has been working at the hotel since he left school and, out of the 13 individuals he leads, has developed a close working relationship with eight of them.

The remaining five have been employed on a casual basis to cater to recent increased demand. 

Since this cohort of eight individuals is closer to Michell’s age, they regularly enjoy drinks with him after work and also participate in other activities.

The five casual valets are much older and, despite being competent workers, do not tend to participate in such activities.

Applying leader-member exchange theory

It is observed that Mitchell’s co-workers of a similar age receive preferential treatment.

He often allows them to choose when they would like to work, but this courtesy does not extend to the older valet attendants who are assigned the less desirable shifts.

The eight employees who choose their hours and enjoy a relationship with Mitchell that extends beyond the workplace comprise the in-group.

The older valets, whose relationship with their superior does not extend beyond the workplace, are part of the out-group.

When the hotel analyzes the employees who have been hired in the past seven years, it is clear that younger recruits readily form a relationship with Mitchell and join the in-group.

These employees tend to perform better and are more committed to the company and its customer-centric values. 

Developing a relationship with the out-group

Mitchell then meets with his manager who informs him that it would be beneficial for all concerned if he worked to establish a better relationship with members of the out-group. 

At the most simplistic level, Mitchell could hold after-work drinks at a location or venue that is more attractive to the older valets.

He could also promote a mentorship culture within his department where younger and older valets are encouraged to share their skills and perspectives with each other.

While not every member of his staff will want to become part of the in-group, Mitchell understands that older valets must be offered more desirable working hours to improve their commitment, motivation, and sense of belonging.

He also does the following to build better relationships with this group:

  • Self-reflection – Mitchell takes the time to analyze his strengths and weaknesses when interacting with others. He finds that his active listening skills need work and his lack of emotional intelligence is also holding him back.
  • Scheduling and accessibility  – Mitchell also notes that time must be scheduled to develop relationships with the older valets otherwise it is unlikely to happen. In addition to more extra-curricular staff events, he leaves the first 15 minutes of a shift open to discuss any issues and avoids hiding in his office during the day.
  • Asking for assistance – the most successful relationships are built on give and take – even those in the workplace. Mitchell decides to ask his older staff for advice more often and delegate important tasks to them to better manage his workload. By acknowledging their unique skills and expertise, it is hoped that the older staff will feel more valued and included in the hotel’s day-to-day operations.

Key takeaways:

  • The leader-member exchange (LMX) theory is a dyadic, relationship-based leadership theory developed by Fred Dansereau, George Graen, and William Haga in 1975.
  • The leader-member exchange theory argues leaders have different relationships with different subordinates. These can be categorized into two groups: the in-group and the out-group.
  • The leader-member exchange theory encourages leaders to use initiative and develop positive relationships with out-group members. This enables them to identify their own biases and increase productivity.

Types Of Leadership

Agile Leadership

Agile leadership is the embodiment of agile manifesto principles by a manager or management team. Agile leadership impacts two important levels of a business. The structural level defines the roles, responsibilities, and key performance indicators. The behavioral level describes the actions leaders exhibit to others based on agile principles. 

Adaptive Leadership

Adaptive leadership is a model used by leaders to help individuals adapt to complex or rapidly changing environments. Adaptive leadership is defined by three core components (precious or expendable, experimentation and smart risks, disciplined assessment). Growth occurs when an organization discards ineffective ways of operating. Then, active leaders implement new initiatives and monitor their impact.

Delegative Leadership

Developed by business consultants Kenneth Blanchard and Paul Hersey in the 1960s, delegative leadership is a leadership style where authority figures empower subordinates to exercise autonomy. For this reason, it is also called laissez-faire leadership. In some cases, this type of leadership can lead to increases in work quality and decision-making. In a few other cases, this type of leadership needs to be balanced out to prevent a lack of direction and cohesiveness of the team.

Distributed Leadership

Distributed leadership is based on the premise that leadership responsibilities and accountability are shared by those with the relevant skills or expertise so that the shared responsibility and accountability of multiple individuals within a workplace, bulds up as a fluid and emergent property (not controlled or held by one individual). Distributed leadership is based on eight hallmarks, or principles: shared responsibility, shared power, synergy, leadership capacity, organizational learning, equitable and ethical climate, democratic and investigative culture, and macro-community engagement.


Micromanagement is about tightly controlling or observing employees’ work. Although in some cases, this management style might be understood, especially for small-scale projects, generally speaking, micromanagement has a negative connotation mainly because it shows a lack of trust and freedom in the workplace, which leads to adverse outcomes.

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