While continuing to explore the molecular components of interpersonal leadership, it would be good to pause on the important distinction between transactional and transformational leadership. The concept of transformative leadership has become a decisive organizing theme for much of the research and writing on leadership. One basic form of leadership involves immediate reciprocity of interests, exchange of benefits between leaders and followers which can be called transactional, hence it is called transactional leadership. Leaders consciously satisfy the needs and interests of their followers and are rewarded with their support or punished by withdrawing it. Leaders, on the other hand, use rewards and sanctions to build their power base and instill discipline in the ranks. Classic examples of this type of exchange are readily apparent. A politician elected to office rewards his supporters with jobs and punishes his opponents by reducing their influence. A manager gains or loses the operating unit's trust by providing or withholding capital resources, and it is effective when the college dean increases faculty salaries and budget lines. This form of leadership meets the basic test of reciprocity, as the reciprocity of the relationship is evident. Yet transactional leadership tends to accept the status quo while avoiding or ignoring important forms of conflict over purpose and values. It lacks the ability to respond creatively to the forces of change, inspire followers to excel, or challenge society or the organization to meet the demands of ethical commitment.

Leadership is primarily characterized by change leadership in ethical terms. It involves the leader's ability to call followers to a higher level of moral understanding and commitment (for example - the ability to lead a group or society to a higher concern for justice and equality) rather than merely meeting material needs, a transformational leader who engages followers on these broader levels of needs, values and goals. Brings lasting and fundamental change.

Transformational leadership models the relationship between leaders and followers in business, military, and other organizations. Transformational leaders challenge their subordinates' thinking, take a personal interest in their development, inspire them to higher levels of achievement, and represent a magnetic source of attraction. Bass explains that transformational and transactional leadership are not mutually exclusive, as most leaders exhibit both characteristics in their work.

In the context of leadership in higher education it is clear that the terms transactional and transformational can be misleading if they are used to categorize leaders or their influence into exclusive categories. They are better viewed as leadership practices and motifs that are more deeply embedded in practice than as rigid categories that are applied blindly to all the work of an individual or group. Many changes can take decades to make and may result in incremental gains over time. A key question for colleges and universities becomes the shape and intent of leadership processes and their ability to motivate the academic community to respond effectively to change.