The Challenge of Nepotism

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Most employers consider employee referrals a good source of new hires. Having a personal connection with someone who already works in an organization often translates into easier onboarding and longer tenure. But how close is too close?

Photo by Earl M, Flickr

The Merriam-Wbster dictionary defines nepotism as “the unfair practice by a powerful person of giving jobs and other favors to relatives.” Ethics educators, Judy Nadler and Miriam Schulman, group favoritism, cronyism and nepotism together and describe them as follows:[1]

  • Favoritism: Favoring a person not because he or she is doing the best job but rather because of membership in a favored group, personal likes and dislikes, etc.
  • Cronyism is a more specific form of favoritism, referring to partiality towards friends and associates. Cronyism typically occurs within a network of insiders who confer favors on one another.
  • Nepotism is an even narrower form of favoritism. Coming from the Italian word for nephew, it covers favoritism to members of the family.

Whatever form “playing favorites” takes, it can have a devastating effect on workplace culture and employee engagement and morale. No doubt you’ve encountered one or more types of favoritism at work. You may even have been guilty of playing favorites on occasion. After all, it’s human nature to turn first to the people we know and trust. But at what cost?

Here are a few examples of hiring and/or promotion decisions that went terribly wrong largely because of close, personal relationships. (Note: the stories are real the names are not.)

The Untouchables

Four partners founded an engineering firm. Each was responsible for a specific area of business function over which they had complete control. As time went on, one of the four (let’s call him Bob) populated his department with a number of friends and associates whose company he enjoyed. Unfortunately, a number of these individuals did not have the skills required to do the jobs they were hired for. Regardless of questionable performance reviews and mounting complaints from the competent few who picked up the slack, Bob continued to defend his favorites, who soon became known as “the Untouchables.” 

It took a while for the combination of eroding standards and employee disengagement to permeate the organization. When it eventually reached critical levels, it led to an internal meltdown, an executive-level intervention and a complete restructuring of the HR function. Before the situation was resolved, many of the best employees were lost and the relationship between the founders was permanently damaged.

Sold on Friends

In another example, IT startup CEO, Desmond, desperately needed to boost sales to grow his fledgling business. His expertise was software development, not sales, and he knew he needed help. As it happened, his best friend Jason had some experience in software sales, so he quickly jumped on what seemed like an obvious solution and offered Jason the job. Although Jason’s sales experience involved smaller companies and a much smaller average sale, Desmond assumed “sales is sales” and left him to it. Jason, not wanting to let his friend down, dove into enterprise software sales using everything he’d previously learned, with limited success.

Over the next few quarters, Desmond began to have serious doubts about his choice, but he didn’t feel comfortable raising his concerns with Jason for fear of destroying their friendship. Instead, he refused to talk about work when they socialized and became more and more withdrawn and abrupt at the office. Jason was confused, Desmond was frustrated and the company slid into a life-threatening tailspin.

Blood is Thicker (and Messier) Than Water

In our third example, Susan, the CEO of a growing professional services firm, built her company from the ground up to a multi-million dollar operation with an excellent reputation in the industry. John, a trusted participant in building the company, also happened to be her spouse. As the company faced the typical growing pains of systematising a previously unstructured environment, Susan promoted John and tasked him with managing the transition, so she could focus on bringing in business. She didn’t stop to consider whether John was suited to the role or capable of the assignment, she just wanted someone she could trust.

In reality, neither Susan nor John had the necessary skills or experience to pilot the company through this rocky growth phase. As John struggled to develop new processes, implement critical changes and manage an expanding workforce, he defaulted to a strict command and control management style that quickly alienated employees. Having put him in charge (and not wanting to undermine him either professionally or personally), Susan backed off and refused to intervene. The staff interpreted her silence as abandonment.

As John became increasingly overwhelmed, his interactions with staff become more and more confrontational. The employees, seeing John’s promotion as pure nepotism (since he clearly did not have the necessary competencies for the role), began to lose respect for Susan’s leadership.

The more dysfunctional the workplace became and the more beleaguered Susan felt, the more she was inclined to close her door and lose herself in the work at hand. It didn’t take long for the workplace stress to overflow into Susan and John’s personal relationship as well. Within a year, the company, Susan, and John were all on the brink of collapse.

As these three examples illustrate, favoritism in the workplace is fraught with challenge and seldom leads to good hiring and promotion decisions. These kind of decisions often damage morale, destroy relationships, exacerbate employee turnover, set people up for failure and undermine the credibility of leaders. In most cases, it just doesn’t pay to hire or promote on the basis of a close, personal relationship.

It's Not Nepotism When It's Fair

On the flip side, personal relationships are based on trust and trust is a critical component of high-performance teams. The tradition of the family business is one good example of the way families can work together, leveraging the trust inherent in those relationships. And sometimes the “known quantity” a friend or associate brings to the team is invaluable. In fact, for the first few years of its existence, TribeHR was fortunate to include among its employees the sister of co-founder, Joseph Fung. As one of the company’s earliest employees, Donna was subject to the same rigorous hiring process faced by all TribeHR employees and was held to the same high standards. This important distinction, together with her performance, made it clear she was an appropriate hire. The key takeaway here is: proceed with extreme caution.

When it comes to hiring family, friends and associates, here's  what you need to remember:

  • It’s all about fairness (perceived or real). Keep your eyes and ears open for any early warning signs of discontent associated with favoritism and respond to them immediately.
  • Relationship is never reason enough. Hire and promote on merit and competence first. This is especially important to avoid being accused of discrimination.
  • Make sure that standards and policies apply to everyone. When in doubt, err on the side of caution when a personal relationship exists.
  • Avoid reporting relationships between friends and relatives.
  • When things go wrong, never sacrifice workplace culture or employee well-being in an effort to preserve your personal relationship—that truly is unfair. You created the situation with your original decision, accept responsibility and make it right.


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