Leader-Member Exchange Theory

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The research indicates that leaders who are trusted will have several effects on their employees and their organization (Green, 2012, p. 1). In terms of determinates, leaders who become trusted are usually skilled at trusting as trusting and trustworthiness are positively associated. These leaders are also good collaborators and operate from a clear set of principles and values, which show to others that the leader is not opportunistic, selfish, or manipulative (Green, 2012, p. 1). These negative values are then rejected by the leader’s employees. These leaders are also intrinsically motivated instead of extrinsically motivated, which increases intrinsic motivation among employees. Trusted and trusting leaders generally improve job satisfaction, loyalty, and performance among employees (Green 2012, p. 1).
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The importance of leader-member exchange theory lies in what the theory teaches about in-groups and out-groups (Brown, 2012). The theory holds that leaders are often successful when they create a small in-group of trusted advisors and lieutenants. The members of this inner circle are likely to work hard and be very productive because they feel good about being in the inner circle. The theory also shows that leaders generally form inner circle groups from people similar to themselves (Brown, 2012). This means that there is often a lot of bias in whom gets promoted to leadership circles. It is also important to understand because when an employee demonstrates certain character traits seen as negative by management, they are less likely to be promoted to leadership positions (Brown, 2012). Therefore, it is very valuable for employees to understand that acting selfishly or not showing very much loyalty will hurt their chances at promotion. It is also useful for employees to understand that mirroring the values of management circles will increase their changes of promotion because management will trust them more (Brown,

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