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What is nepotism in the workplace?

The keys to hiring smart when running a family business

Nepotism in the workplace has always been a hot topic, especially in politics and business. Some examples are Donald Trump putting his daughter and son-in-law into advisory roles during his presidency and John F. Kennedy nominating his brother as attorney general. In the business world, Rupert Murdoch’s son, James, has attained a powerful role thanks in part to his father, while much of the Walton family has been involved in the running of Walmart.

Nepotism in the news brings up important questions: Is hiring family members always wrong? How can I spot and prevent nepotism in my business? As a business owner, you’ll likely face these questions at some point. Now is the time to get prepared.

What is nepotism in the workplace?

Nepotism in the workplace is the practice of showing preference toward family or friends, and it often rears its head in the workplace when a higher-up at a company selects someone they know for a new position or promotion. Many people picture companies bypassing strong applicants for a position in favor of hiring family members who can’t do the job. Those relatives promptly take advantage of their position, taking much, giving little and generally poisoning company culture.

Despite this negative connotation, nepotism in the workplace is a common practice in the business world. It occurs frequently in politics, large corporations, non-profit organizations and small businesses. Types of nepotism include:

  • Reciprocal: A family member accepts a position because they are financially dependent on the employer, they feel a sense of obligation and loyalty or nepotism has become a norm in their family.  
  • Entitlement: A family member accepts a position because they feel entitled to it. Their decision isn’t based on family ties, which can lead to more negative effects than reciprocal nepotism.
  • Cronyism: There is a difference between cronyism and nepotism, but they’re often confused. Cronyism is similar, but it is when you hire friends or give promotions to close colleagues rather than family. Cronyism often happens in politics.

Is nepotism in the workplace unethical?

Nepotism often provokes the image of a “good old boys” network where powerful executives bring in unqualified buddies or relatives, resulting in corruption and other issues. But hiring family members isn’t always unethical. When utilized properly, it can be a way for small business owners to create a legacy as large corporations continue to swallow up independent companies.

When someone hires family members to work in the business before turning it over to them, nepotism in the workplace transforms into on-the-job training for future owners. Rather than leaving the business to children who have no knowledge of the business’ inner workings, the owners can groom the next generation and ensure they are up to the task. Looking at it this way, nepotism can be a positive for a business.

What about as an employee? If you’re a hiring manager, can you get fired for nepotism? As long as you take a step back, look at things from a distance and make an objective case for or against hiring a friend or family member, rather than automatically hiring them, nepotism in the workplace isn’t unethical. Still, it can have negative consequences if not properly monitored.

Negative consequences of hiring family members

As a business owner, you need to do more than ask “What is nepotism in the workplace?” You need to know how to spot it. Here are a few signs that hiring family members isn’t working.

how would you describe your work style

1. Poor work performance

Taking on an individual who is unqualified (who may not even have the background necessary for the role) will cost you time and money. If this person is not a quick learner, your staff will end up covering for them – first explaining things over and over, then eventually taking on the tasks themselves when no action is taken against this hire. This will affect employee productivity as well as build resentment toward the company for keeping on those who can’t pull their weight.

2. Special treatment

The CEO hires a friend or relative for a high-powered role at a company where workers are expected to be at their desks and working by 9 o’clock every morning. This individual shows up first at 9:15, then 9:30 and then finally starts rolling in around 10. Everyone else is still held to the 9 o’clock standard. No discipline occurs; if the CEO notices the tardiness, they don’t seem to care. This treatment can also include perks that other employees at the individual’s level don’t receive, like a larger spending stipend or the power to accept and veto projects.

3. Career ceilings 

Many employees fear that a “friends and family” hire will impact their own efforts to move up in the company. If they are up for a promotion and their competition is a close friend or family member of the CEO, they may assume that the relation will receive the promotion, and not even apply for it. This robs the business of talented potential leaders you could have otherwise nurtured.

4. Manipulation

If a business owner hires a friend or family member who has some measure of emotional control over them, they can be manipulated into doing things that aren’t in the best interest of the company. This could include growing too quickly, making policies that don’t take the rest of the employees’ well-being into account or allowing a toxic organizational culture to develop. When nepotism results in manipulation, it can mean the end of a business.

5. Lack of innovation

Developing a culture of innovation is crucial to growth and ensuring a business is not disrupted by others in the industry. Nepotism in the workplace can sometimes result in a large core of a business sharing the same thoughts and beliefs and not encouraging out-of-the-box ideas. Having a team that is a mixture of different backgrounds, cultures and ways of thinking keeps the workplace fresh and encourages innovation while nepotism can lead to stagnation.

6. Toxic organizational culture

It doesn’t matter what sort of job qualifications the person you hire possesses – people tend to believe that favoritism is at play whenever a relative is hired. If you don’t treat your family members like the rest of the team, allow them to come in late or leave early or promote them ahead of more qualified employees, your actions could cause a toxic organizational culture and ultimately hurt your business. Your other employees could start to wonder if you really value them, and your retention of key team members could suffer.

7. Unhappy employees

If your employees believe – rightfully or not – that they are being overlooked in favor of an undeserving  family member, they won’t be happy at work and will begin to search for other opportunities where they have a chance for advancement. Even worse, they could stay at your company and become toxic employees who ruin the culture with their negative attitude. This sort of situation can start a ripple effect of resentment and frustration throughout the company, impacting both the performance of other employees and your ability to retain them.

8. Poor personal relationships

You also run the risk of hurting your relationship outside the business if your relatives’ employment does not go as planned and you need to discipline or fire them. That’s why it’s vital to talk to them before they are hired and explain that your personal relationship is independent of your working status. Having trouble getting through to them on this issue? It might be a sign they wouldn’t make a good hire.

Positive benefits of hiring family members

The answer to “What is nepotism in the workplace?” isn’t always negative. If you have a position to fill and are considering bringing on a close friend or family member, you could experience positive benefits as well.

Positive benefits of hiring family members

You already know them

You may want to hire a friend or family member because you’re aware of their weaknesses and strengths, as well as their potential – particularly when compared to candidates you’ve never met. To build a team that works, you need a variety of different skills, backgrounds and personalities. Due to your relationship with that particular family member or friend, you’ll already know how they fit in with the rest of the team and can quickly integrate them into your daily routine.

They share your values

Families often share core values and belief systems, which translates easily to sharing a company mission statement. If your business is small and family-run, then the friend or relative you have in mind for the role may also have a good idea of their role and function. This means reduced training time and expenses when they’re brought on board.

They care about your business

Nepotism in the workplace also means you’re bringing on those who could continue your legacy after you retire or decide to leave the business. Many family members will have more of a vested interest in your business’ success than other employees, especially if they plan to run it one day. Even if they’re not next in line, they likely still want to see you and your business succeed – after all, they’re family, and in that sense it’s already likely their business too. This can lead to more dedication and an ownership mentality, which can set a good example for the rest of your team.

You can count on them

Because you know your family members care about your business, odds are you can trust them when it comes to sensitive information and confidential aspects of your business. You can also count on them to show up and fill in when you need them. Hiring family members often means gaining an employee who is willing to not only work long hours and accept less pay, but will buy into your dream and help you achieve it. Be careful here – the opposite can also occur, and you’ll end up with a lazy, entitled employee.

How to hire a family member

Still believe hiring a family member makes sense? While you can’t control how your other employees view nepotism, you can build a process around the way you hire family members to increase your chances of success.

hiring family members

Set expectations

To ensure your nepotism doesn’t backfire, make sure the relationship is on solid ground first, then set expectations for your new hire. Make sure you both understand that if the position doesn’t work out, they will be let go and that it will not damage your relationship outside of work. Tell them they will be treated like everyone else in the company and put them through the same training and probationary period as your other employees. Finally, be transparent with the rest of your team. Tell them you are hiring someone you have a personal relationship with and that if anyone sees negative effects of this nepotism, they can bring their concerns to you.

Make sure your team is solid

When nepotism in the workplace has negative consequences, you’ll face frustration from your other employees and from the person you promoted. You want to create an internal raving fan culture for your employees, not one of resentment. If your company doesn’t already have a solid core of dependable, dedicated team members who believe in you and the work you do, nepotism – especially if it involves a family member underperforming – can have disastrous consequences.

Ask the right questions

Do your relative’s passions align with your company’s mission? Will the position they fill leverage their skills and interests? Are they truly the best fit for the role you’re hiring for or do you owe them a favor? Have them take the DISC profile assessment to better understand what drives and ultimately fulfills them. The discussion is a two-way street, with both of you striving to figure out if this is a decision that will benefit everyone involved.

Gauge their personality fit

Personality is key when bringing someone into your business – whether it involves hiring relatives or not. Your close knowledge of your family member puts you at an instant advantage. While there must be a reasonable level of technical skill, it’s the soft skills – interpersonal skills, communication styles, thought processes and emotional intelligence – that can make or break your hiring decisions. Hiring family members whose behavior and values oppose yours and those of your company will, over time, erode your brand and destroy morale.

Examine core values

Core values are what a company stands for and they’re derived from your brand’s ultimate purpose. They are your company’s creed and culture and what every employee – including those you are related to – must embody. Before hiring family members, clarify your core values and make sure your relative knows what will be expected of them. The smaller your organization, the more important it is to define how these core values will be manifested in that particular position.

Know the law

While nepotism in the workplace is not illegal and nothing explicitly prohibits you from doing it, there are some issues to keep in mind. Declaring job openings and ignoring qualified candidates in favor of a family member may be crossing a line. And bear in mind that when hiring a relative, you are also required to disclose any potential conflict of interest to shareholders. Failure to make that information known could violate the 2002 Sarbanes-Oxley Act and result in fines or other repercussions.

Make the right choice

If you do end up hiring a relative, you must hold them accountable and ensure that the standards and expectations you set are not just met, but exceeded. A high-performing family member who is held to the same standards as the rest of the employees will gradually be accepted as a valued coworker, not just the relative of the boss who was hired due to nepotism. This, in turn, can raise standards throughout the company and lead to organic growth.

Running a business is a complicated endeavor and hiring family members to work with you can make it even more so. Though there are plenty of pitfalls that can occur when you work with family, there are just as many upsides when it’s done right.

Team Tony

Team Tony cultivates, curates and shares Tony Robbins’ stories and core principles, to help others achieve an extraordinary life.

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