In the business world, nepotism is the practice of showing favoritism toward one's family members or friends in economic or employment terms. For example, granting favors or jobs to friends and relatives, without regard to merit, might be considered nepotism. These practices can have damaging effects on businesses—such as eroding the support of non-favored employees or reducing the quality and creativity of management. In response, some larger companies have instituted "antinepotism" policies, which prevent relatives (by blood or marriage) from working in the same department or firm. But in many smaller, family-owned businesses, nepotism is viewed in more positive terms. Family members are trained in various aspects of management to ensure the continuity of the company when members of the earlier generation retire or die. In fact, in many small businesses nepotism is considered a synonym for "succession."
One of the most common arguments against nepotism is that the emotional ties between people who are related may negatively affect their decision making abilities and professional growth. In the past, many businesses sought to avoid even the appearance of nepotism by forbidding relatives from working closely together. As women entered the work force in greater numbers and took on more significant jobs, however, rules regarding nepotism began to change. Both the man and the woman in a married couple were often too valuable for a company to lose. Instead of instituting strict antinepotism rules, many businesses decided that family members could be accommodated within a merit system, especially if there was no direct supervisory link between the positions of related employees.
Nepotism has also traditionally had negative connotations in small business environments. "Business owners and their advisers have often feared that non-family employees would resent and possibly treat unkindly family members brought into the business or would see the family members as roadblocks to their own career success," noted Sharon Nelton in Nation's Business. "They also feared that some family members themselves might be incompetent or lazy yet have an attitude of entitlement."
But nepotism can be useful in smaller, family- owned businesses, when practiced in a reasonable way that rewards all employees for company successes. The emotional bonds between family members can actually have a positive effect on individual performance and company results. In addition, hiring family members can fill staffing requirements with dedicated employees. And it should not be forgotten that preparing a family member to carry on a business is a perfectly legitimate enterprise for the owner of a family business.
But in order to avoid potential pitfalls and ensure that relatives work together effectively, the company should establish formal guidelines regarding hiring, responsibilities, reporting structure, training, and succession. These guidelines will be different depending on the family's size, culture, history, and line of business, in addition to other factors. "How strict or liberal the rules …are is less important than clear communication of the rules before they are needed and fair application of the rules when timely," Craig E. Aronoff and John L. Ward wrote in Nation's Business. After all, most non-family employees recognize the legitimacy of preparing younger family members to assume the company's reins down the road. But experts agree that a widespread workforce perception that family members are not being held responsible for their performance can blossom into a major morale problem.
Regarding hiring, Aronoff and Ward recommend in Family Business Succession that family members meet three qualifications before they are allowed to join the family business on a permanent basis: an appropriate educational background; three to five years' outside work experience; and an open, existing position in the firm that matches their background. Of these qualifications, Aronoff and Ward stress that outside work experience is the most important for both the business and the individual. They claim that it gives future managers a wider experience base that makes them better equipped to deal with challenges, lets them learn and make mistakes before coming under the watchful eye of the family, makes them realize what other options exist and thus appreciate the family firm, and provides them with an idea of their market value.
Aronoff and Ward also suggest that family members begin their association with the business by working part-time during their school years or participating in internships. In addition, they stress that companies who hire family members should make it clear to the individuals that they will be fired for illegal or unethical behavior, regardless of their family ties. Finally, they recommend that family businesses encourage their employees to maintain outside associations in order to avoid problems associated with a lack of creativity or accountability in management. For example, future managers could participate in industry or civic groups, enroll in night school classes or attend seminars, take responsibility for a division or profit center, and have their job performance reviewed by outside consultants or directors. Such steps can improve the employee's self-confidence and preparation for an eventual leadership role in the business.
Aronoff, Craig E., and John L. Ward. Family Business Succession: The Final Test of Greatness. Business Owner Resources, 1992.
Aronoff and Ward. "Rules for Nepotism." Nation's Business . January 1993.
Lynn, Jacquelyn. "Lawfully Wedded Employees." Entrepreneur. April 2000.
Milazzo, Don. "All in the Family." Birmingham Business Journal. August 11, 2000.
Nelton, Sharon. "The Bright Sight of Nepotism." Nation's Business. May 1998.
SEE ALSO: Family-Owned Business