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Graen's leader-member exchange model, also known as the vertical dyad linkage theory, explains the theory as viewing leadership as consisting of a number of dyadic relationships linking the leader with a follower. The relationship quality or success is reflected by the degree of mutual trust, loyalty, support, respect, and obligation.

This theory states that leaders form different kinds of relationships with groups of subordinates possessing varied traits. One group, referred to as the in-group, is favored by the leader. Members of in-group receive considerably more attention from the leader and have more access to the resources, both real and implied. Other subordinates fall into the out-group. These individuals are placed in constant disfavor by the leader and by extension, the in-group. As such, they receive fewer valued resources from their leaders.

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