"Upon this a question arises: whether it be better to be loved than feared or feared than loved? It may be answered that one should wish to be both, but, because it is difficult to unite them in one person, is much safer to be feared than loved, when, of the two, either must be dispensed with."Nicolo Machiavelli, The Prince - Translated by W. K. Marriott
Many raid leaders seem to employ fear as their primary means to control their raiders. If a raider doesn't perform as she should, repercussions follow. Whether you will hear the leader's wrath on Ventrilo, get deducted fifty DKP or get kicked from the guild - if you don't do what your leader says you will be in a world of pain. Ruling by fear means that you keep the expected repercussions for negative actions higher than the expected gain and therefore make it unwise for people not to obey you.
To successfully control your raid with fear you need to be firmly in the seat of power and that extends beyond simply being able to guild kick or reduce DKP. Your guild needs to be successful enough that players don't just go for greener pastures when you threaten them and your base among the members must be high enough that they don't just revolt. Machiavelli actually adresses this in "The Prince" later on, stressing that while being feared is alright, the ruler must not be hated. If people see the raid leader being unfair, fear can turn into hatred which in turn leads to hidden disobedience, leaving the guild, or a revolt.
The second way to rule that Machiavelli mentions is through love, but love is a fickle mistress indeed. A raid leader may have close personal relationships with a couple of raiders but it will be very hard to maintain one with everyone on your roster. Having a group of people that is willing to support your every action and will stay with you come hell or high water is very helpful - but this is not the kind of love you need to lead larger amounts of people. Your raiders will love you when you give them what they want. Give them success, let things slide, give them free repairs from the guild bank - all that will make your raiders happy, but only as long as you can provide it.
"And that prince who, relying entirely on their promises, has neglected other precautions, is ruined; because friendships that are obtained by payments, and not by greatness or nobility of mind, may indeed be earned, but they are not secured, and in time of need cannot be relied upon;"Nicolo Machiavelli, The Prince - Translated by W. K. Marriott
Guild leaders that rely on this kind of love alone will find themselves in a very tough spot once they cannot provide the basis of that love anymore. One of the most common examples here would be that of the guild that hits some rooster block or another in its progression. When progression breaks down, the raid leader needs big support from the raiders to keep the whole thing going. Those raiders, however, who only stayed because they liked the success will leave at exactly that point. You will also find that you can't just grant everyone's wishes because that will alienate others. There's not always a choice that's beneficient for everyone. You can't always be nice as a leader.
I'm not saying that being loved is a bad thing, not at all. Indeed you will find that your best raiders are not those who are afraid of you (and also not those whose love you bought) but those whose love you earned. This made me wonder whether there is a third variable in that game, one that is neither love nor fear. I would say that variable is respect. Machiavelli hints at this in the above quote when he distinguishes between friendships obtained by payments and those obtained by greatness or nobility of mind. If people learn to think of you as not the one who makes the decisions that are best for them but the one who makes the right decisions, then they will start to develop respect for you. If you make fair, transparent and correct decisions, people will be far more likely to accept one that goes against their own interests. A ruler by fear will be obeyed as long as she has sufficient threats at her hands. A ruler by love will be obeyed as long as she has enough rewards to hand out. A ruler by respect will be obeyed as long has her decisions are fair and transparent.
Macchiavelli said that to be both loved and feared would be best, but failing that you would be better off feared than loved. Expanding from that, it is best to lead by all three - fear, love, and respect. The best raid leaders are the ones whose decisions people trust while keeping issues at bay with a hard hand on anyone who doesn't and at the same time being nice to people whenever fairness allows it. This balance can be a hard one to strike, and like Machiavelli I am willing to concede that you may drop one of the three, but not all combinations are equal. If you are loved and feared, you will keep people at bay as long as outright quitting the guild is not an option but you don't really have anything to stop them from doing that when things do go downhill. If you are loved and respected, you generally won't need to be feared - but you will always have the oddball in your raid that doesn't know how to respect others and will cause trouble if you never show your hard side. If you are feared and respected, no one will challenge your decisions, but sometimes people perform better with a little pat on the back instad of a smack on their buttocks.
In my opinion, respect is the one of the three variables that you should never miss. Rule fair and transparently or you will lose your players at some point or another. If you can, use both fear and love with the respect but don't sweat if you lack one or the other. Just never sacrifice respect for them. Don't start making unfair decisions to be loved or hated if it will cause people to lose respect in your decisions overall. It's not worth it.
UPDATE: For a more hands-on approach, have a look at my follow up series. Part 1 is here.