Week 6 — Theories in Action — Behavioral Theories — Burn’s Transformational Leadership Theory

James MacGregor Burns’s transformational leadership theory helps explain what distinguishes a highly effective institutional salesperson. Burns recognized that the leader-follower relationship is a reciprocal one and distinguished between two forms of leadership: transformational and transactional. Transactional leaders cooperate with their followers in pursuit of a shared goal, but they base their relationship on the exchange of resources that can include time, money, help, and instruction, creating an exchange-based relationship. The sales team talked about the market’s cyclicality, as we are currently in the longest bull market in history. They noted that the best salespeople are the ones who are effective during economic downturns and turmoil. The way to be successful during this time is to have a deep relationship with the client so that when they need to cut costs, you will not be the cost they cut. An exchange-based relationship from a transactional salesperson would likely not warrant this mercy. However, a transformational salesperson likely would. Burns defines transformational leadership as “the reciprocal process of mobilizing, by persons with certain motives and values, various economic, political, and other resources, in a context of competition and conflict, in order to realize goals independently or mutually held by both leaders and followers.” According to Burns, transformational leaders share power with their followers instead of merely having power over their followers, allowing for a mutual stimulation that elevates the followers to influence each other instead of the leader being the sole influence. A transformational salesperson does this by having an in-depth knowledge of the product. This allows for a genuine and stimulating back-and-forth between the salesperson and the client instead of the salesperson merely regurgitating a script. This back and forth may illuminate ideas or shortcomings that the salesperson or client had not thought seen. This benefits both parties, as the client may perceive an idea in a new way or the salesperson may be better prepared for their next sales call. Transformational leaders are also guided by higher-order motives and pro-social values instead of basic needs or selfish desires. Highly effective salespeople have similar guidance. The senior salespeople told us this week after our stock pitches that the worst thing you can do when your idea is wrong is hide from your client. They noted that they genuinely care about their client’s success and not just the service fee they make. This care is essential for developing a non-exchange-based relationship with the client and drives the salespeople to have a genuine understanding of what they are selling, so they too believe in the idea.