Leadership has evolved from a command-and-control role rooted in the industrial era to a relational more than a century ago to influence-based practice defined by adaptability, collaboration, and shared purpose.
Where late-1800s leaders relied on authority, hierarchy, and compliance to drive productivity, today’s leaders succeed by cultivating trust, making sense of complexity, and enabling others to excel.
This shift reflects a broader transformation in work, society, and organizational life to position modern leadership as a learned, inclusive, and dynamic capability rather than a fixed title or inherited trait.
Here at HLE, our focus narrows the leadership view together with the financial services industry as that is our primary group to serve.
Core idea: Leaders are born, not made; history is shaped by extraordinary individuals.
Assumptions: Fixed traits, often elite, male, military and political figures.
Parallel fields of Thought: Positive psychology with philosophical roots in Aristotle’s eudaimonia and virtue ethics that later inform positive psychology. In economics and finance it focused on the classical rational actor; markets assumed efficient.
Notable Reading: On Heroes in 1841 by Thomas Carlyle argues that history is shaped by great individuals whose innate qualities set them apart, presenting an early “Great Man” theory of leadership that framed leaders as heroic figures destined to guide society.
Core Ideas: Identify stable traits that differentiate leaders from non-leaders with intelligence, dominance, confidence; “Who you are” is what matters. Methods of research began to include early psychometrics and correlational studies.
Alignment: Positive psychology precursors that included humanistic themes about strengths and virtues (later formalized as “character strengths and virtues” in Seligman and Peterson). Behavioral finance is still decades away, but this era parallels early “rational” finance foundations with leaders, like investors, assumed to be stable, calculative actors thinking rationally.
Notable Reading: Patterns of Aggressive Behavior in Experimentally Created Social Climates, by Kurt Lewin, that introduced leadership as a behavior, not a birthright and went on to establish group dynamics as central to leadership effectiveness.
Core Ideas: Shift from traits to behaviors. Ohio State and Michigan studies identify task vs. relationship behaviors; Blake & Mouton’s Managerial Grid. New perspectives said that leaders can be trained to behave differently.
Alignment: In psychology, behaviorism dominated focus on observable behavior and reinforcement rather than inner states. Early work on motivation and job satisfaction, but not yet framed as “positive psychology.” Modern Portfolio Theory and efficient markets rise with systematic, rules-based behavior, still assuming rationality.
Notable Reading: Leader Behavior in Effective and Ineffective Organizations in 1961 by Rensis Likert and colleagues at University of Michigan Studies. Introduced employee-oriented vs. production-oriented leadership.
Provided empirical evidence linking leadership behavior to organizational outcomes like team morale, turnover and productivity.
Core Ideas: Leadership thoughts began to say there is not one best style as effectiveness depends on the fit between leader, followers, and the situation (Fiedler contingency, Hersey–Blanchard situational, path; goal theory). Match style to context (task structure, follower readiness).
Alignment: Motivation and positive psychology have roots here as we see research talk about self-determination, expectancy theory, job design work emphasize intrinsic motivation and meaningful work; all proto-positive-psychology constructs.
Behavioral finance origins are seen with Daniel Kahneman and Amos Tversky's work on heuristics and prospect theory shows that decision quality is contingent on framing and context. Contingency leadership and behavioral finance both say behavior is context-sensitive, not universally rational or universally effective.
Notable Reading: Leadership in 1978 by James MacGregor Burns introduced the pivotal distinction between transactional and transformational leadership, redefining leadership as a moral, relational process that elevates both leaders and followers toward higher purpose and collective transformation.
Core Ideas: Transformational leadership (Bass, Burns)with idealized influence, inspirational motivation, intellectual stimulation, individualized consideration. Charismatic leadership and visionary leadership. Servant leadership (Greenleaf) emphasizes serving followers and community
Alignment: Leaders shape meaning, identity, and values, not just tasks. Positive psychology emerges explicitly with Seligman, defining it as the science of strengths, virtues, and human flourishing. Transformational leadership shares meaning, purpose, hope, optimism, growth mindset. While Servant leadership leads with virtue, pro-social behavior, positive relationships. Early “strengths-based” and appreciative approaches to leadership are built on these same foundations.
Behavioral finance consolidates as a formal challenge to rational markets (Thaler, Shefrin, Shiller). Leaders are re-cast as choice architects who tend to frame risks and opportunities (prospect theory) while leaders influence of herd behavior and market sentiment.
Notable Reading: On Becoming a Leader in 1989 by Warren Bennis. His thoughts reframed leadership as authenticity, values, vision, and personal growth that defined modern expectations of who leaders are and what they do.
Core Ideas: Leadership focus broadens to address Authentic leadership with self-awareness, relational transparency, internalized moral perspective. It goes on to identify the notion of positive leadership or positive organizational scholarship described as the focus on thriving, resilience, virtuous practices and lastly acknowledges the exploration or Leader-Member Exchanges and relational leadership that cares for the quality of dyadic (paired) relationships.
Alignment: Positive psychology formalizes PERMA (Positive emotion, Engagement, Relationships, Meaning, Accomplishment). Leadership research starts explicitly tying strengths-based leadership to employee engagement and performance while resilience, hope, optimism (psychological capital) is connected to leadership effectiveness and follower outcomes. This era is essentially “Phase 1” of leadership–positive-psych fusion.
Behavioral biases and anomalies (overconfidence, loss aversion, mental accounting, disposition effect) become standard vocabulary while organizational and leadership scholars start to examine C-suite biases in capital allocation, M&A, risk management. Integrating debiasing and choice architecture as leadership tools (e.g., structuring decision processes, red-team reviews, pre-mortems) begins to emerge. The same psychological constructs driving investor mistakes—overconfidence, anchoring, narrow framing—show up in leadership judgment. Good leadership is, in part, sophisticated behavioral-risk management.
Notable Reading: Dare to Lead in 2018 by Brené Brown captured the modern shift toward vulnerability, psychological safety, courage, and relational influence that is a core item in today’s leadership philosophy.
Core Ideas: Complexity leadership, shared leadership, distributed leadership positions leadership as an emergent property of networks and systems. Inclusive and diversity-oriented leadership seeks to leverage different identities and perspectives while continued work on authentic, ethical, and servant leadership, with more nuanced, cross-cultural perspectives grows.
Leadership literature now routinely pulls from concepts such as nudging and choice architecture (Thaler & Sunstein style) for organizational decision frameworks while other topics like risk perception, ambiguity aversion, time inconsistency as relevant constraints in strategy and governance receive more attention.
This is where the two worlds of Leadership and Investing for the financial professional strongly intersect: Modern Leadership = applied positive psychology and applied behavioral finance, in complex social systems.
Notable Reading: Dare to Lead in 2018 by Brené Brown captured the modern shift toward vulnerability, psychological safety, courage, and relational influence that is a core item in today’s leadership philosophy.
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