Nepotism in the workplace

What is nepotism in the workplace and is it illegal? Includes examples, pros and cons, and the difference between nepotism, referrals, and cronyism.

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Organizations should strive to prevent nepotism from becoming a factor in the workplace.

In this piece, you will learn:

What is nepotism in the workplace?

Nepotism in the workplace occurs when a leader within an organization uses their influence to favor particular individuals based on personal relationships.

Typical examples include someone in a managerial or executive position using their power to:

  • Hire or promote a family member or friend over a better-qualified candidate
  • Give employees preferential treatment during day-to-day activities (selection for desirable projects, poor work overlooked or unpunished, assigning uneven workloads, etc.)

Nepotism in the workplace has many negative connotations and is an unfair practice for a business to undertake. Allowing personal relationships to influence decision-making can create severe consequences for companies.

It typically reduces organizational performance and worsens work culture with under-skilled employees and management no longer judging employees solely on merit.

With staff members performing roles they are incapable of, the overall output of a business is reduced. Limiting opportunities for gifted employees increases employee turnover and creates a talent drain. Showing preferential treatment for specific employees reduces the morale of the wider workforce.

Nepotism in the workplace also ruins the relationship and trust between staff and leadership, as well as the relationship between staff and favored employees. This can prevent an open work environment, making staff unwilling to collaborate with one another and expand the organization’s institutional knowledge.

Nepotism produces a closed-off system preventing new voices from reaching positions of power. Moreover, it contributes to societal inequality, helping to create an “old boys’ network,” where people maintain control amongst connections usually of the same class or race. In contrast, a meritocracy judges people only on the merit of their work, not who they know, helping to produce social mobility and a fairer society overall.

While nepotism in the workplace is generally seen as a poor business practice, it can produce upsides in certain circumstances. We don’t criticize small family-run businesses passed down through generations for nepotism. Skills unique to the company and the work ethic that makes it a success are often instilled by parents early, making their children the ideal candidates to continue their work.

In specific instances, this may be applicable in the wider business world. For example, people close to influential figures may have additional skills due to their proximity to them. However, for it not to be detrimental, the individual hired must be chosen due to their abilities and not only their personal connections.

Types of nepotism in the workplace

There are two different types of nepotism:

  • Reciprocal nepotism – when the person receiving favorable treatment does so for financial reasons, loyalty, improving the personal relationship, or due to cultural norms (e.g., nepotism is already prevalent).
  • Entitlement nepotism – when the person receiving favorable treatment feels they deserve it just because of their personal connections.

Entitlement is closely related to elitism and the idea that only a subsect of society has the intrinsic abilities (quality, intellect, nobility, skills, intellect, etc.) to be in positions of power. Many countries around the world have problems with entitlement and elitism.

For example, only 7% of people are privately educated in Britain, yet they occupy 39% of top positions. Furthermore, there is a clear progression from fee-paying schools (7%) to Oxford and Cambridge graduates (1%) into the top jobs in the country. This pipeline represents 52% of senior judges, and a staggering 39% of Boris Johnson’s cabinet in Spring 2019 followed this path.

Cronyism could also be considered a form of nepotism, although it is specific to favorable treatment for friends and excludes family. Cronyism is found across many fields, including politics.

Is nepotism illegal in the workplace?

While the legal framework regarding nepotism in the workplace varies across countries, generally speaking, there are no specific laws against it in the private sector. However, in many countries, it is illegal to discriminate against employees (based on a range of potential factors), and it may be possible to prove discrimination in cases where nepotism occurs.

There is some grey area between nepotism and discrimination. While it is difficult to prove one crossing over into the other, organizations with nepotistic practices can leave themselves open to potential lawsuits.

In contrast to the private sector, many countries have specific nepotism laws related to government workplaces. For example, there are statutes and regulations mentioned by the Federal Civil Service prohibiting nepotism in the US. This includes:

  • Criminal statute (18 U.S. Code – 208)
  • Administrative statutes (5 U.S. Code – 2302(b)(7) and 3110)
  • Regulations for ethical conduct by Federal employees (5 Code of Federal Regulations (C.F.R) – 2635.502)

Depending on the state, there are also statutes preventing lawmakers from hiring family members and creating a conflict of interest.

Why does nepotism in the workplace happen?

The leading cause of nepotism in the workplace is someone high up in a business willing to use their position to benefit personal relationships over the overall business objectives. They look to help a friend or family member rather than making an unbiased decision based on factors such as:

  • Relevant experience in related roles
  • Qualifications or education
  • Having compatible personality traits to fit the team
  • Sharing the values of the organization

If nepotism becomes a factor in the workplace, it shows someone in a position of power is willing to act unethically. For example, perhaps a manager is looking to provide a favor to get one in return; maybe they want to promote a close colleague or workplace ally who will side with them on decisions and help them consolidate further power within the organization.

Nepotism in the workplace often thrives within a broader toxic work culture where people put their own interests first. To keep nepotism in check and ensure decision-making is based on the proper criteria requires strong leadership overseeing the management below. Staff also need to be able to expose instances of nepotism safely (without repercussion).

Examples of nepotism in the workplace

Nepotism remains a common practice across several sectors, including politics, business, and entertainment. Prominent examples include:

  • Donald Trump hiring his daughter and son-in-law as senior White House advisers. The appointments exploited loopholes in US nepotism laws for public officials and also allowed Jared Kushner and Ivanka Trump to profit from their roles in the administration.
  • Rolling Stone co-founder Jann Wenner appointing his 23-year old son as head of digital for the online versions of Rolling Stone, US Weekly, and Men’s Journal. Reports suggest the recent graduate had only worked at the company for six or seven months before the promotion.
  • Investors have criticized Rupert Murdoch on separate occasions for the appointment of his sons. Lachlan Murdoch became deputy chief operating officer of News Corp at 32, and James Murdoch became CEO of British Sky Broadcasting Group at age 31.
  • Former UK Health Secretary Matt Hancock was accused of cronyism when he awarded a £40m government contract for Covid-related work to his former pub landlord. The previous neighbor from Hancock’s constituency reached out to him via a personal WhatsApp message and was chosen despite having no previous experience producing medical supplies.

Difference between nepotism and referrals

Some may defend nepotism as a form of referral rather than deliberate favoritism when it comes to hiring and promotions. However, the critical difference between a referral and nepotism is that the final assessment is based on the candidate’s skill set, knowledge, experience, and other relevant factors.

Referrals from existing staff or other stakeholders can help find team members with the potential to be a great fit within a workplace. Talent acquisition in the modern world is growing more competitive, and many companies struggle to identify candidates with the right skill set for a given role. But as employees progress through their careers, they develop relationships with people who have similar skillsets and take a similar approach to work, making them ideal additions to their current workplace.

While a referral from someone within the company may offer visibility to the candidate, it only gets them through the door and does not become a decision-making factor from then on. In contrast, nepotism occurs when a personal relationship creates a biased decision-making process.

Cons of nepotism

1. Reduced productivity, morale, and engagement

Nepotism reduces work performance with unqualified employees lacking the required experience or ability to perform the job asked of them. While the hire could be a fast learner with a natural affinity for the role, it is more likely they will underperform, make errors, and slow down operations.

Not hiring the best person available for the job reduces the overall performance and output of the company. When employed in a position of power, overseeing other employees, the reduced performance from nepotism becomes more pronounced and creates additional problems.

While it is possible for other staff to compensate for this reduced performance by covering and taking on a greater workload, this will cause resentment amongst employees. Plus, it could swing the other way and lead to a reduced work ethic with staff members losing motivation as they see no reward for their hard work.

Nepotism in the workplace harms employee morale, engagement, and productivity. Showing employees performance is not the deciding factor when it comes to hiring, promotions, or day-to-day practices is a sure-way fire of destroying their motivation for the job. This has many unwanted consequences, including lower quality of work being performed, a lack of creativity and innovation, and a diminished overall capacity for a company.

2. Special treatment

Giving special treatment to certain employees can also produce resentment affecting the wider workforce. Not holding everyone to the same standards exposes the hypocrisy in the organization’s leadership, worsening the relationship between staff and management.

3. Reduced employee development

Staff who work hard and produce excellent work lose motivation if they see someone chosen ahead of them based on a personal connection. No matter how hard they work, leadership places an artificial ceiling on their development through no fault of their own.

Nepotism can rob an organization of the talent they already have, talent that could drive them forward and produce the next high-performing leader with the correct development.

4. Increased turnover

This is closely related to employee turnover. Nepotism in the workplace inherently means an organization is not treating employees fairly. Why would a gifted employee continue working for a business where nepotism undermines their talent?

When employees don’t feel valued and recognized for their effort, they will start looking for new opportunities. This shrinks the talent pool available and causes issues during future hires.

Word gets around when a company struggles to hold onto its talent. High turnovers and continually hiring new staff is not a good sign and can lower the standard of applicants looking at a business’s open positions.

5. Poor corporate culture

Nepotism shows a company has questionable morals, accepts at least some level of unethical behavior, and is a common symptom of a poor corporate culture. Nepotism is a roadblock to a healthy work environment and leads to long-term problems maintaining a happy and productive team.

This is especially true if leadership espouses company values that contradict their real-life business practices, including nepotism.

6. Reduced diversity

Nepotism harms the diversity of the workforce. People hired and promoted tend to come from the same background as the people already in a position of power. Improving diversity in the corporate world is more than just the right thing to do; it makes business sense. With people from different backgrounds involved in decision-making, organizations hear a diverse range of opinions to learn new information and consider previously unseen factors.

7. Worse personal relationships

Nepotism ruins the relationship between employees and management. Employees that believe management has overlooked them for someone they consider underserving are not likely to trust their superiors moving forward.

Nepotism leads to staff leaving or, perhaps worse, remaining at the company and becoming actively disengaged, contributing to a toxic work environment. This type of attitude can spread quickly through an organization and create serious issues.

8. Potential lawsuits

Although nepotism is not illegal, it can lead to discrimination complaints and lawsuits. An employee who feels cheated or ignored through nepotism may also have been discriminated against and able to find grounds to sue or file a complaint.

For example, multiple instances of nepotism that involve people of the same race, religion, or gender could form the basis of a discrimination lawsuit.

Also, nepotism thrives in toxic work environments where people feel free to abuse their power. Therefore, nepotism is often a sign of other unethical or even illegal business practices.

Pros of nepotism

While nepotism is not a healthy or effective way to manage a business, there are some potential benefits to hiring a close friend or family member.

1. Known quantity

A manager hiring someone close to them gets a known commodity. They are aware of the person’s strengths and weaknesses, as well as their potential for growth. There is only so much you can learn about a candidate during the hiring process, and selecting a close friend or family member can reduce the likelihood of unforeseen issues.

2. Shared values

Businesses strive to create an identity based on shared values. A company choosing to hire someone from the same background as an existing leader is likely to find someone with a shared belief system known to match the business’s mission.

3. Personal connection

Someone with a personal connection to their boss may have extra incentive to work hard and make their career at the company a success. They may even feel the need to overcompensate for how they got the job and prove to other employees they weren’t only hired due to nepotism.

How to avoid nepotism in the workplace

While nepotism can create serious problems for a business, it can be more challenging than you’d think to prevent it from creeping into your organization.

Tip #1. Define an anti-nepotism policy

Putting an anti-nepotism policy in writing and making it accessible to every employee (often in the employee handbook) helps remove potential conflicts of interest down the line.

For example, policies could:

  • Prohibit family members from working in the same department
  • Prevent situations where a family member reports to someone they are related to
  • Ensure a family member does not have a direct say in a relative’s workload, promotion opportunities, or financial compensation

Tip #2. Leadership training

The anti-nepotism policy should become a part of leadership training alongside the expectation that all managers make decisions based on objective factors.

In addition, training needs to provide a clear definition of favoritism to ensure managers can both avoid it and report it when they see examples from other staff members.

Tip #3. Define a transparent hiring and promotion culture

Hiring new staff and promoting existing staff must be open and visible to all employees. Being transparent can help remove questions of nepotism by showing the thought process behind the decisions made.

This should include the involvement of multiple people with the HR department also looped in to ensure the neutrality of the final decision-makers. Managers need to explain their reasoning for all hires and promotions to senior management for approval.

Suppose an instance occurs at a company where a close personal friend or family member becomes a serious candidate for a position. In that case, the existing staff member related to the candidate should recuse themselves from deciding on their fate.

The document that should guide the final determination during hiring is the job description. Having exact, accurate, and detailed job descriptions for every role in a company can help shield against nepotism perhaps more than anything else. It sets the expectations and qualifications required for a position and clearly shows when a significant discrepancy is present between the candidate and the job description.