This paper argues that developing productive relationships is an essential capability of effective leaders. Research both in the East and the West has demonstrated that managers who develop effective relationships motivate and inspire employees to solve problems and perform effectively. It is widely recognized that leadership is a performing art, not an intellectual pursuit. Our argument, however, is that theory can guide leadership practice. Indeed, leaders can be credible by the consistent use of a theory to develop their relationships with individual employees and among employees. The particular ways that they apply the theory will depend upon the employees, the situation, and themselves. This paper first reviews the theory of cooperation and competition and then briefly summarizes research support. The second part of the paper explores major ways that managers and employees can apply the theory to develop productive work relationships.