Leadership Styles Compared: What Research Says About Their Effect

Which leadership style suits a small business?

Anyone leading a business with ten or thirty employees rarely has leadership training. The owner leads the way he was led himself, or the way that comes naturally. Sometimes he decides everything himself, sometimes he lets things run because there is no time. Advice books then recommend a style with an impressive name without saying how well its effect is supported.

The question this article sets out to answer: what does research actually know about the effect of different leadership styles, and how much of it is useful for a small business? To answer it, I first clarify the terms and present the model on which most studies are based. Then come the findings, two readings, and a translation into everyday work.

What is a leadership style, and which styles exist?

A leadership style is a recurring pattern of how a leader assigns tasks, makes decisions, gives feedback, and deals with mistakes. It is not a character trait but behavior. That matters because behavior can be changed. DeRue, Nahrgang, Wellman, and colleagues (2011) showed in a meta-analysis that leaders' behavior explains more of their success than traits such as intelligence or personality.

The oldest well-known classification comes from the psychologist Kurt Lewin in the 1930s: authoritarian, democratic, and laissez-faire. It is vivid but coarse. Today's research relies mostly on a finer model, which the following table compares with the classic classification.

The model: full-range leadership

The full-range leadership model goes back to the political scientist James MacGregor Burns (1978) and was developed by Bernard Bass and Bruce Avolio. It arranges leadership behavior along a line from passive to active and from barely to highly effective. At one end stands avoidance, at the other transformational leadership.

Transactional leadership rests on an exchange: the leader clarifies expectations and rewards and responds to deviations. Transformational leadership goes further. As described by Judge and Piccolo (2004), it has four components: idealized influence, meaning behavior employees identify with; inspirational motivation, meaning a goal that spurs people on and gives the task meaning; intellectual stimulation, meaning questioning assumptions and soliciting ideas; and individualized consideration, meaning attending to each person with their own needs.

1. Laissez-faire

   No leadership: decisions are avoided, questions are left lying.

2. Passive management by exception

   Leadership only after the mistake.

3. Active management by exception

   Deviations are sought out and corrected early.

4. Contingent reward

   Goals and rewards are agreed and kept.

5. Transformational leadership

   Meaning, example, thinking along, and developing the individual are added.

One idea of the model is particularly useful for owners: the styles are not mutually exclusive. Transformational leadership is meant to complement transactional leadership, not replace it. If you convey meaning but do not keep agreements, you lose credibility.

What do studies show about the effect?

The most important single source is the meta-analysis by Judge and Piccolo (2004), a statistical synthesis of many individual studies. It analyzed 626 correlations from 87 sources and looked at six measures of success: employees' satisfaction with the leader, job satisfaction, motivation, rated leader effectiveness, the leader's job performance, and group or organizational performance.

Three results matter in practice. First, transformational leadership had the strongest overall link with success, including in studies with several measurement points. Second, contingent reward came close behind, and on several measures it was even stronger. Third, laissez-faire was almost as strongly negative as the effective styles were positive. Active and passive management by exception, by contrast, were inconsistently related to success.

The correlation of 0.80 between transformational leadership and contingent reward is remarkable. It means that whoever leads well in a transformational way usually also keeps agreements. The two effective styles mostly occur together.

More recent studies confirm the pattern across countries. Poethke, Rowold, and Diebig (2025) surveyed 3,182 employees in seven countries, including Germany, at two points in time. Transformational leadership and a strategically oriented, so-called instrumental leadership explained the most of job satisfaction and commitment to the company.

The limits matter. Many studies measure leadership and success with the same questionnaire, which can overstate relationships. Correlations do not prove cause and effect. And hardly any of the large studies looks specifically at businesses with fewer than 50 employees, where the owner is at once proprietor, supervisor, and often colleague.

Two readings: vision or reliable agreement?

The first reading follows the reputation of the research: transformational leadership is the best style, so owners should learn to create meaning, speak inspiringly, and be role models. The meta-analysis supports this reading for the overall relationship.

The second reading emphasizes contingent reward. It is almost as effective, on some measures more effective, and it is easier to learn. Clarifying goals, keeping commitments, and recognizing achievements require no charisma, only reliability. For an owner who dislikes speaking in front of people, that is good news.

My assessment: I consider the second reading the more important lever in small businesses, because it is the precondition for the first. A vision resting on agreements that are not kept comes across as performance. Conversely, reliable agreements, regular conversation, and honest feedback often produce on their own part of what research calls transformational: trust in the leader and the feeling of being seen as a person.

One finding deserves separate consideration. González, Gómez, and Rodríguez (2026) surveyed 2,439 leaders of family businesses in 70 countries. Transformational leadership was linked everywhere with innovativeness and proactiveness. Authoritarian leadership, too, was associated with proactiveness and risk-taking in many cultural regions. That does not contradict the overall picture, but it shows that a style's effect depends on the goal and on culture. Whether a style retains employees is a different question from whether it enables quick decisions.

Charisma without kept agreements is performance. Kept agreements without charisma are already good leadership.

How do you lead today? An honest inventory

Before you work on a style, it is worth looking at your actual behavior. Take a typical week and roughly assign the form in which you led. The following worked example shows a profile that is probably common in many small businesses.

Such a profile is no reproach. It arises when the owner is himself caught up in day-to-day business and leadership happens on the side. But it shows where the lever lies: less passive intervention, more firm agreements. How the owner's role changes as the business grows is described in the essay The role of the owner.

What follows for leadership in a small business?

A sequence can be derived from the findings, which I call the Leadership Staircase. Each step presupposes the one before.

1. Step 1: Be available

   End laissez-faire. Fixed times when employees can reach you, and decisions that do not get left lying.

2. Step 2: Make agreements and keep them

   For each task, clarify result, deadline, and framework. How to do this is described in Delegating tasks with a clear handover.

3. Step 3: Recognize what has been achieved

   Name achievements promptly and concretely. How feedback works without coming across as criticism is shown in Feedback in the sales team.

4. Step 4: Explain meaning and direction

   Say why something matters and where the business is heading. Ask employees for their ideas.

5. Step 5: Develop the individual

   Know what each employee can do and wants to learn, and assign tasks accordingly.

For sales teams, Leading a sales team describes fixed meetings and coaching in detail. What motivates employees beyond money is discussed in What motivates salespeople, and why good leadership is the strongest reason to stay is covered in Keeping good people.

The next step

• For one week, note three leadership situations each evening and assign each to a step of the Leadership Staircase.
• Set two fixed times per week when you are reliably available for the team's questions.
• Go through open tasks: does each have an agreed result and a deadline?
• By Friday, concretely recognize what two employees have achieved.
• At the next team meeting, explain in three sentences where the business wants to be next year.

Conclusion: which leadership style works in small businesses?

We set out to ask
research knows about the effect of leadership styles and how much of it is useful for small businesses. The answer: transformational leadership and contingent reward are most strongly linked with leadership success, and they mostly occur together. Passive laissez-faire is almost as strongly linked with failure. The findings are based mainly on larger organizations and on surveys, but they are remarkably stable across many countries and industries.

For a small business this does not mean choosing between styles, but following a sequence. First be available, then make reliable agreements, then recognize achievements, and on top of that convey meaning and develop people. The most effective leadership style begins with things every owner can learn.