The following is based on a variety of research and review papers which are referenced within the essay.
Basic ideas of leadership are about power and its use, about control of resources, and how they are disposed, initiatives in social interpretation, sensemaking and shaping of meaning and the place of individuals in the context of social control options like the law.  Consideration of leadership has moved through notions about heroes, attention to traits, context and advocacy of the importance of the leader having vision. Whilst some considered leaders were born, others developed ways of training leaders. In 1990s as some continued to argue that crafting strategy was the principal task of the leader others saw that creating the climate in which followers could achieve more than their best was the main game.
“Courage – not complacency – is our need today. Leadership – not salesmanship. And the only valid test of leadership is the ability to lead. Our ends will not be won by rhetoric. We can have faith in the future only if we have faith in ourselves.”
John F Kennedy
In the 1970s through the 80s organisations were seen to be facing the dilemma of employee commitment.  Jay Conger (University of Southern California) has observed that in the midst of their change efforts, companies were resorting to extensive downsizing as well as to new organisational arrangements such as flatter hierarchies and strategic business units. While often improving bottom-line performance, these initiatives took their toll on worker satisfaction and empowerment. In the process, the old social contract of long-term employment in return for employee loyalty was broken. The net result was the disenfranchising of many in the workforce. Moreover, this occurred just at the moment when corporations were demanding ever-greater performance and commitment from employees.
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For companies, the challenge became a question of how to orchestrate transformational change while simultaneously building employee morale and commitment, a seemingly contradictory endeavour. In the view of Conger, these events had a direct impact on the study of leadership. It turned attention to the senior leaders in the belief that they possessed the power and resources to effectively implement significant organisational change.
In the late 1970′s an approach to studies of leadership emerged which engaged a number of researchers in the USA and expanded to investigate the extent to which a new theory of leadership behaviour, based first on studies of politicians, could be applied internationally, was more valid in circumstances of crisis, applied to people at different levels and was true for both public and private organisations.
Transformational Leadership Theory emerged from considerations by James McGregor Burns  of the histories of various political leaders. Burns identified two types of leadership style, transformational and transactional leadership. Transformational leaders engaged with followers and sought new ways of working so as to achieve more for both themselves and followers than they would ordinarily. Transactional leaders engaged with followers as part of an exchange process that involved tangible rewards for superior performance and mutual support. Burns drew from the literature on traits, leadership styles and research on the behaviour of leaders and followers, as well as his own observations. 
In more detail, the transformational leader was seen as someone who engages with others in such a way that leader and follower raise one another to a higher level of motivation and morality, a level not easily explained by traditional instrumental exchanges. These higher aspirations or goals of the collective group are expected to transcend the individual and result in the achievement of significant change in work unit effectiveness. Burns believed that all managers could be classified by leadership style according to their propensity for transactions with, versus transformation of, subordinates.The transactional leader, on the other hand, was seen as operating within the existing system or culture, had a preference for risk avoidance, paid attention to time constraints and efficiency, and generally preferred process over substance as a means for maintaining control. The skilful transactional leader was likely to be effective in stable, predictable environments where charting activity against prior performance is the most successful strategy. This leader prototype was consistent with an equitable leader-member exchange relationship where the leader fulfilled the needs of followers in exchange for performance meeting basic expectations.
Bernard Bass , as much as anyone, has advanced Burns’ theories. In Bass’ view , transformational leaders seek new ways of working, seek opportunities in the face of risk, prefer effective to efficient answers and are less likely to support the status quo. Transformational leaders don’t merely react to environmental circumstances, they attempt to shape and create them. They may use transactional strategies when appropriate but tend to use symbolism and imagery to solicit increased effort by raising the level of intellectual awareness about the importance of valued outcomes, by raising or expanding individual needs and by inducing a belief in transcending self-interest for the sake of the team or organisation.
In 1985 Bass developed an instrument to measure both transactional and transformational leader behaviour and to investigate the nature of the relationship between these leader styles and work unit effectiveness and satisfaction. The resulting instrument, the Multifactor Leadership Questionnaire (MLQ), was conceptually developed and empirically validated to reflect the complementary dimensions of transformational and transactional leadership with sub-scales to further differentiate leader behaviour.  The MLQ has since acquired a history of research as the primary quantitative instrument to measure the transformational leadership construct.
The MLQ has been examined in perhaps more than 100 research studies of leaders in a variety of organisational settings such as manufacturing, the military, educational and religious institutions, and at various levels in the organisation from first line supervisors to senior managers. MLQ scales have been related to a range of effectiveness criteria such as subordinate perceptions of effectiveness, as well as to a variety of organisational measures of performance like supervisory ratings, number of promotion recommendations, performance grades, percent of goals met, pass rate on exams and financial performance of the work unit.
The factors, the definitions and groupings, have been through a number of changes. It is now accepted that the concept involves four factors exhibited by effective leaders.
- Idealised Influence
Leaders display conviction; emphasize trust; take stands on difficult issues; present their most important values; and emphasize the importance of purpose, commitment, and the ethical consequences of decision. Such leaders are admired as role models; they generate pride, loyalty, confidence, and alignment around a shared purpose.
- Inspirational Motivation
Leaders articulate an appealing vision of the future, challenge followers with high standards, talk optimistically and with enthusiasm, and provide encouragement and meaning for what needs to be done.
- Intellectual Stimulation
Leaders question old assumptions, traditions, and beliefs; stimulate in others new perspectives and ways of doing things; and encourage the expression of ideas and reasons.
- Individualised Consideration
Leaders deal with others as individuals; consider their individual needs, abilities and aspirations; listen attentively; further their development; advise; and coach. The MLQ measures a full range of leadership behaviours, including transactional leadership who may be characterised as engaging in the following behaviours:
- Contingent Reward
Leaders engage in a constructive path-goal transaction of reward for performance. They clarify expectations, exchange promises and resources, arrange mutually satisfactory agreements, negotiate for resources, exchange assistance for effort, and provide commendations for successful follower performance.
Active – leaders monitor followers’ performance and take corrective action if deviations from standards occur. They enforce rules to avoid mistakes. Passive – leaders fail to intervene until problems become serious. They wait to take action until mistakes are brought to their attention.
- Laissez Faire Leadership
A non-leadership component – leaders avoid accepting their responsibilities, are absent when needed, fail to follow up requests for assistance, and resist expressing their views on important issues.
It is asserted that Transformational Leadership positively affects organisational effectiveness, revolves around relationships, which are the core of leadership, can be measured and taught, and is effective across diverse cultures and organisations.
Bass’s conceptualisation of the transformational leader also extended the ideas of Robert House (Wharton School of Business, University of Pennsylvania) who promoted the construct of the charismatic leader by incorporating the individualized consideration and intellectual stimulation aspects. Rather than being dependent on the leader, followers were seen as able to demonstrate free choice behaviour and develop follower autonomy within the overlay of the leader’s vision. Thus, true transformational leadership requires employee empowerment, not employee dependence.
Volterra, Tuscany (More)The view that transformational leadership enhances organisational innovation has gained wide popularity among researchers during the past decade.  In summary, research has shown that leaders who display the four behaviours of transformational leadership are able to realign their followers’ values and norms, promote both personal and organisational changes, and help followers to exceed their initial performance expectations.
Transformational leaders go beyond exchanging contractual agreements for desired performance by
- actively engaging followers’ personal value systems and providing ideological explanations that link followers’ identities to the collective identity of their organisation, thereby increasing followers’ intrinsic motivation (rather than just providing extrinsic motivation) to perform their job;
- articulating an important vision and mission for the organisation, so increasing followers’ understanding of the importance and values associated with desired outcomes; and
- raising the performance expectations of followers so increasing their willingness to transcend their self-interests for the sake of the collective entity.
Motivated people tend to prefer novel approaches to problem solving. Followers’ identification with the organisation’s vision, mission, and culture also has been linked to heightened levels of motivation toward higher levels of performance.
Second, by providing intellectual stimulation, transformational leaders encourage followers to think “out of the box” and to adopt generative and exploratory thinking processes.
- They stimulate their followers to think about old problems in new ways and encourage them to challenge their own values, traditions, and beliefs;
- By showing high expectations and confidence in followers’ capabilities, they help to develop followers’ commitment to long-term goals, missions, and vision and to shift their focus from short-term and immediate solutions and objectives to long-term and fundamental solutions and objectives.
A study of unconventional behaviour by leaders in stimulating creativity  indicates that such behaviour (e.g., standing on furniture, hanging ideas on clotheslines) significantly interacts with follower perceptions of the leader as a role model for creativity to explain follower creativity. (In other words, unconventional behaviour by leaders attracts attention and stimulates improved performance.) Results also suggest that unconventional behaviour explains variance in group cohesion above and beyond transformational leadership, and that group cohesion interacts with group intrinsic motivation to explain group creative performance. (That is to say, if leaders behave in an unusual manner, especially in groups where intrinsic motivation is high, followers are encouraged to achieve above average results.)
(In the 1980s at the Royal British Columbia Museum, noted then for its outstanding exhibitions, put the proposed (draft) texts for its exhibition labels on notice boards in corridors for all staff to see and comment on.)
Other examples of the link between leadership and innovation come from the articles by Rosabeth Moss Kanter on leadership and organisational turnaround and Innovation at the World Bank (see articles in Leadership).
The issue of transformational leadership and research and development organisations is dealt with further in the essay on what science leadership really means.
Notwithstanding the very many studies of transformational leadership that have produced important results, the morality of transformational leadership has been sharply questioned, particularly by libertarians, “grass roots” theorists, and organisational development consultants.
These criticisms have been addressed by arguing that to be truly transformational, leadership must be grounded in moral foundations.  “The four components of authentic transformational leadership (idealized influence, inspirational motivation, intellectual stimulation and individualized consideration) are contrasted with their counterfeits in dissembling pseudo-transformational leadership on the basis of
(1) the moral character of the leaders and their concerns for self and others; (2) the ethical values embedded in the leaders’ vision, articulation, and program, which followers can embrace or reject; and
(3) the morality of the processes of social ethical choices and action in which the leaders and followers engage and collectively pursue.”
Chinese leader Deng Xiao Ping took his grandson to see Chairman Mao Zeedong. “You may call me Granduncle“, said Mao to the little boy. “Oh I couldn’t possibly do that“, said the child. “Give him an apple,” said Deng. “Oh, thank you Granduncle“, the little boy chirped. “See what a difference incentives make“, said Deng.
While transactional leadership manages outcomes and aims for behavioural compliance independent of the ideals a follower may happen to have, transformational leadership is predicated upon the inner dynamics of a freely embraced change of heart in the realm of core values and motivation, upon open-ended intellectual stimulation and a commitment to treating people as ends not mere means . To bring about change, authentic transformational leadership fosters the modal values of honesty, loyalty, and fairness, as well as the end values of justice, equality, and human rights
One of the conclusions to be drawn from this examination of the theory is that “social distance” is always important to those who wish to be seen as charismatic but are in fact unethical and wish to ensure that they are not seen in that light. The credibility of the leaders suffers when the truth is stretched. Trust in the leaders is risked and … trust is the single most important variable moderating the effects of transformational leadership on the performance, attitudes, and satisfaction of the followers.  Although distant leaders may be able to play with the truth longer than can close, immediate leaders … the trust so necessary for authentic transformational leadership is lost when leaders are caught in lies, when the fantasies fail to materialize, or when hypocrisies and inconsistencies are exposed. 
Amongst other arguments about leadership, those concerning context have been amongst the most debated. Conger observed that investigations about context and situational factors have been few. Is transformational leadership more important at certain stages of the life cycle of the organisation? Does it apply across cultures? One study which illuminates this is of a school superintendent perceived by her organisation as a charismatic leader. When she later was appointed state commissioner of education that was not how she was seen. Several essential differences were seen between the two contexts. 
In terms of the organisational environment, the person’s first context, a school district, was one in crisis whereas in the second context at the state government level there was not a similar state of distress. Authority also differed: as a superintendent she had much more control and autonomy. As commissioner, her number one priority was political loyalty to the governor. She no longer possessed the freedom to undertake actions she deemed necessary. Instead, her actions had to be cleared through the governor’s office. Her relationships were also different.
Whereas the district organisation had been small with limited stakeholders and localized geographically, the agency was large, complex and bureaucratic. As a result, she had little time to build the deep, personal bonds that she had established at the district level. Her impact at the state level was no longer personal and she did not come to be seen as a charismatic leader.
This study might show that crisis is indeed more receptive to leadership in general and second, there are characteristics of organisations that influence an individual’s latitude to take initiative and to build personal relationships that in turn shape perceptions of leadership. More latitude for initiative on the job may result in simply more opportunities to demonstrate leadership. The superintendent’s position allowed far more autonomy to act than the commissioner’s position. Closer proximity to followers may permit greater relationship building.
Whereas some research shows little relationship between charismatic leadership and crises other studies have seen organisations as benefiting from charismatic leadership in times of uncertainty. This is particularly so of studies of political leadership.  The performance of U.S. presidents was seen by their cabinet members to be strongly related to their charisma. 
Certainly there are differences between different cultures in terms of attributes like uncertainty avoidance, power distance, masculinity-femininity as elaborated by Hofstede  in his 25 years of studies of international companies including IBM. Whilst there are several attributes associated with charismatic/transformational leadership which are seen universally as contributing to outstanding leadership this does not preclude differences between cultures in ratings for those attributes; in other words the attributes likely will be enacted differently in different cultures, as shown by the GLOBE studies of Den Hartog and colleagues .
Attributes like motive arouser, foresight, encouraging, communicative, trustworthy, dynamic, positive, and confidence builder are endorsed as contributing to outstanding leadership. Several other charismatic attributes are perceived as culturally contingent. These include enthusiastic, risk taking, ambitious, self-effacing, unique, self-sacrificial, sincere, sensitive, compassionate, and wilful. None of the items universally perceived as impediments to outstanding leadership describe transformational/charismatic leadership. The importance of certain characteristics seems to vary with hierarchical level in the organisation. As demands, tasks and responsibilities at different hierarchical levels are quite different, it seems likely that preferred leader attributes also differ for the different levels.
Effectiveness of a pattern of behaviour is in part dependent on the hierarchical level of leaders. Top-management is concerned with ends rather than means; middle management with means more than ends and supervisors are instrumental performers . Thus, the implicit theory people hold regarding an effective top-manager or CEO is likely to differ from the implicit theory they hold for an effective supervisor. And followers generally regard leader effectiveness depending on their own values and preferences, those who value extrinsic rewards of work are most satisfied by relationship-oriented leaders whilst those with strong security values are particularly attracted to task-oriented leaders: in other words follower preferences for charismatic leadership are predictable on the basis of the follower values 
The personal view I have that transformational leadership theory is of great significance is based not only on the research conducted using the MLQ but on the substantial support for its underlying propositions found in the work of Kelloway & Barling (all references are found in the articles on leadership), Metcalf & Alimo-Metcalf, Gitell (in her study of Southwest airlines and American airlines), Brown & Posner (in their study of learning and leadership), Carol and Hatakenaka (in their study of the Millstone Nuclear Power Plant – although that study merely points up the importance of building trust in management through attention to staff concerns and the involvement of staff) and a host of others including the substantial studies by Christopher Bartlett (Harvard) and Sumantra Ghoshal (London School of Economics) and Collins & Porras (Built to Last and Good to Great) and studies of the importance of conversations in relation to organisational development (referenced in this section). All these are studies which show the importance of leadership attributes very similar to the four features of transformational leadership.
 Mark F Peterson & James G Hunt, “International Perspectives on International Leadership”, The Leadership Quarterly, Vol. 8/3, p203, 29p (1997)
 Jay A. Conger,” Charismatic and transformational leadership in organizations: An insider’s perspective on these developing streams of research.” The Leadership Quarterly, Vol. 10/2, p145, 25p (1999)
 James MacGregor Burns is a Pulitzer Prize-winning Presidential biographer and writer on transformational leadership; his recent books are (with Susan Dunn) The Three Roosevelts: Patrician Leaders Who Transformed America (Grove Atlantic, 2001) and (with Georgia Sorenson), Dead Center: Clinton-Gore Leadership and the Perils of Moderation (Scribner, 1999).
 Kevin B. Lowe & K. Galen Kroeck, “Effectiveness Correlates Of Transformational And Transactional Leadership: A Meta-Analytic Review Of The MLQ Literature”, The Leadership Quarterly, Vol. 7/3, p385, 41p (1996)
 Distinguished Professor Emeritus of Management and Director of the Center for Leadership Studies in the School of Management at the State University of New York at Binghamton. He is the founding editor of Leadership Quarterl.
 in Leadership and Performance beyond Expectations, New York: The Free Press (1985), quoted by Lowe & Galen Kroeck (1996).
 See the article by Bernard M. Bass & Bruce J. Avolio
 Dong I. Junga, Chee Chow & Anne Wu, “The role of transformational leadership in enhancing organizational innovation: Hypotheses and some preliminary findings”, The Leadership Quarterly, Vol 14/ 4-5, p. 525-544 (2003); this article has extensive references – not cited here – to original papers by Bass, Avolio, Lowe, Shamir and others.
 Kimberly S Jaussi and Shelly D Dionne, “Leading for creativity: The role of unconventional leader behavior”, The Leadership Quarterly 14/4-5, p 475-498 (2003).
 Bernard M. Bass & Paul Steidlmeier, “Ethics, character, and authentic transformational leadership behavior”, The Leadership Quarterly, Vol. 10/2, p181, 37p (1999); see also the James McGregor Burns Academy of Leadership website for an essay by Bass on this topic.
 Bass & Steidlmeier loc cit.
 according to a large-scale survey by P.M. Podsakoff et al, “Transformational leader behaviors and their effects on followers’ trust in leader, satisfaction, and organizational citizenship behaviors. The Leadership Quarterly, Vol 1, 107-142 (1990) quoted by Conger (1999).
 Bass & Steidlmeier loc cit.
[14 a study by N.C. Roberts & R.T. Bradley, reported in "Limits of charisma", p 253-275in J. A. Conger & R. N. Kanungo (Eds.), Charismatic leadership: The elusive factor in organizational effectiveness(San Francisco, CA: Jossey-Bass, 1988) quoted by Gary Yukl & Jane M. Howell, " organizational And Contextual Influences On The Emergence And Effectiveness Of Charismatic Leadership", The Leadership Quarterly, Vol. 10/2, p257, 27p (1999)
 David A Waldman & Francis J Yammarino, “CEO charismatic leadership: Levels-of-management and levels-of-analysis effects”, Academy of Management Review vol. 24/2, p 266-285 (1999)
 House, W.D. Spangler & J. Woycke, “Personality and charisma in the U.S. presidency: A psychological theory of leadership effectiveness.” Administrative Science Quarterly, 36, p. 364-396 (1991).
 Geert Hofstede, Cultures and organizations: software of the mind (London: McGraw-Hill, 1991)
 Deanne N. Den Hartog et al, “Culture specific and cross-culturally generalizable implicit leadership theories: are attributes of charismatic/transformational leadership universally endorsed?”, The Leadership Quarterly, Vol. 10/2, p219, 38p (1999)
 A. Etzioni, A comparative analysis of complex organizations, New York: Free Press (1961), quoted by Den Hartog et al
 Mark G Ehrhart & Katherine J. Klein, “Predicting followers’ preferences for charismatic leadership: the influence of follower values and personality”, The Leadership Quarterly, Vol. 12/2, p153, 27p (2001)