Leadership is a complex phenomenon with numerous definitions; hence, it is useful to point out several aspects of leadership prominent in various approaches and definitions of leadership:

1. Leadership is a characteristic of leaders, i.e., individuals who take on the role and are accepted by the members of the group to achieve the common goals of the group.
2. Leadership assumes cooperation between the leader and the rest of the group.
3. Leadership gives purpose, motivation, and meaningful direction for the group.
4. Leadership involves the leader using his personal and collective resources in order to optimally achieve the common goal.
5. Leadership entails that leaders possess higher status and power than other members of the group, and in return, the willingness of other members to accept that status and power as legitimate.
6. Leadership involves leaders coordinating people and giving them tasks, and using rewards to reward those who accomplish tasks and punishments or reprimands for those who do not successfully accomplish their tasks.  

Leadership involves influencing group members to achieve organizational goals through persuasion, example, direction, control, or oversight. In democratic societies, leadership contains two major tensions. First, Edmund Burke distinguished between a trustee, who uses personal judgment to serve constituents, and a delegate, who follows the majority’s wishes. It also highlights the difference between rulers, traditionally viewed as elites qualified to govern, and leaders, who are chosen by the people. Second, leadership can be transactional or transformational. Transactional leadership emphasizes hierarchy, rewards, punishments, control, and worker incentives, reflecting Taylorist management principles. In contrast, transformational leadership is based on vision, inspiration, and persuasion. Rather than controlling followers, transformational leaders seek to create strong, lasting commitment to shared goals.

Contemporary management theorist Bernard Bass examined transformational leadership in his book Leadership and Performance Beyond Expectations (1985). Bass’s theory of transformational leadership explains why some leaders can achieve exceptional employee performance while also increasing workers’ happiness and fulfillment. Bass argued that effective leadership combines transactional methods, such as rewards and contracts, with charisma and inspiration. He identified three personality types within organizations: task-oriented, who are competitive and motivated by challenges; self-oriented, who seek personal success and rewards; and interaction-oriented, who value relationships and social contact. Bass believed that successful teams depend on the combination of these personalities and the qualities of their leader. Transformational leaders can have a significant impact by focusing on three areas. First, they help employees understand the importance of their work and encourage recognition and respect. Second, they promote employees’ personal growth, development, and career goals. Finally, they encourage workers to prioritize the organization’s collective interests over personal benefits. Ultimately, transformational leadership connects individual fulfillment with shared organizational goals.

Leadership theories have developed significantly over time, moving from the belief that leaders are naturally gifted individuals to approaches that emphasize behavior and situational factors. During the nineteenth and early twentieth centuries, “great man” theories dominated leadership research. Influenced by thinkers such as Thomas Carlyle and Francis Galton, these theories argued that effective leaders possessed inherited and permanent traits, such as intelligence, personality, dominance, and physical characteristics. However, research by Ralph Stogdill found that although leaders tended to have slightly higher intelligence, extroversion, adjustment, and dominance, no universal set of traits could reliably predict leadership.

Later research revived the importance of personal characteristics. Studies by Lord, de Vader, and Alliger found relationships between leadership perceptions and traits such as intelligence, dominance, and masculinity-femininity. Kirkpatrick and Locke also identified drive, integrity, self-confidence, cognitive ability, competence, and the desire to lead as important leadership characteristics.

Researchers then shifted from asking what leaders are to examining what leaders do. Behavioral approaches identified important leadership styles and behaviors. The Leader Behavior Description Questionnaire helped measure leadership behavior, while research identified dimensions such as initiating structure and consideration. Other studies distinguished between production-oriented leaders, who emphasize planning, direction, and productivity, and employee-oriented leaders, who focus on relationships and employee well-being. However, behavioral theories produced inconsistent findings, encouraging researchers to consider the situation in which leadership occurs.

Contingency and situational theories argue that leadership effectiveness depends on the interaction between the leader, followers, tasks, and circumstances. Fiedler’s contingency theory suggests that effectiveness depends on the fit between leadership style and factors such as leader-member relationships, task structure, and position power. He distinguished between task-oriented and relationship-oriented leaders and argued that leaders generally cannot easily change their leadership style; instead, organizations may need to change the leader or situation.

Hersey and Blanchard’s situational leadership model emphasized the combination of task and relationship behaviors, suggesting that different combinations may be effective in different circumstances. House’s path-goal theory proposed that leaders should clarify goals, remove obstacles, motivate employees, and provide feedback, while adapting their behavior to task and follower characteristics. Finally, Vroom and Yetton’s normative decision model focused on follower participation in decision-making, depending on factors such as time, resources, employee abilities, and the importance of follower support.

In The Anatomy of Power (1983), John Kenneth Galbraith introduces a typology of three basic types of power: compensatory power that buys subordination, condign power where subordination is achieved by making alternatives worse choices, and conditioned power where subordination is achieved by persuasion. Sources of power can be: personality (leadership), wealth, and organization. In earlier societies, the most common source of power was compensatory power combined with leadership, while in modern societies, conditional power, combined with organization, was dominant as a source of power. The organizations that are the most important sources of power in modern society are: the government, military, religion, and the press.

Chester I. Barnard, in The Functions of the Executive (1938), offers a key insight into authority, arguing that it does not reside in the person giving orders but in the person receiving them. Orders are only effective if they are understood, accepted as consistent with organizational goals, and feasible to carry out. While skilled leaders intuitively understand this, they often overestimate their own authority and overlook how frequently their directives are ignored.

In The Change Masters (1983), Rosabeth Moss Kanter argues that American businesses face a challenging global environment and must undergo a “corporate renaissance” to remain competitive. She contends that the tools for success already exist, particularly in companies that effectively foster innovation. Kanter defines “change masters” as leaders who understand how to manage change by shaping supportive organizational environments. She emphasizes that innovation—broadly defined as implementing new problem-solving ideas—depends on valuing individuals, investing in people, and encouraging initiative within firms.

In the book The Theory of Economic Development (1912), Joseph Schumpeter introduces the thesis that the basis of economic development is the actions of entrepreneurs whose main role is to be leaders in introducing innovations. Innovations introduced by entrepreneurs can be very different: new technologies, new goods, new raw materials, new markets, different organization of production, etc. Such entrepreneurial innovations deviate from established ways of producing and doing business, using new methods or an innovative combination of old methods, doing what Schumpeter calls "creative destruction" in order to create a new, better economic system. It distinguishes economic innovations made by entrepreneurs from technological inventions. In that sense, entrepreneurs differ from inventors, capitalists, bankers, managers, landowners, and workers, because only entrepreneurs introduce real innovations into the economy. Although entrepreneurs may, at the same time, have other functions (those mentioned above), they are primarily driven by the desire to innovate and take risks, and not the desire for profit or earnings. Entrepreneurial activities thus represent the basis of capitalism and its development, and in Schumpeter's theory, their activity is crucial for understanding his theories of credit, profit, capital, and economic cycles.

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