The pros and cons of nepotism

Nepotism is defined as “the practice among those with power or influence of favoring relatives or friends.” We normally think of it as negative; but is it really?

What are some of the advantages of nepotism?
Because you have a pool of family members or relatives of employees, your recruiting costs will be lower, as will training costs since many may have worked part time while going to school and have familiarity with the business.

Making their relatives proud results in a more committed employee who wants to learn quickly. Family members are usually very dedicated resulting in lower turnover. There is a higher level of commitment since relatives want to see the company succeed. Loyalty, morale and trust are also high.

One of my members is a third-generation CEO of a business started by his grandfather. He has two sons in the business with significant responsibilities earmarked to take control when he retires.

In my opinion, this is a success story because of my CEO member’s core values. His kids were raised with the same strong core values found in his company.

What are some of the disadvantages?
Entitlement is one I’ve witnessed, especially among heirs to be. Too many kids feel they deserve the business when their parent(s) retire or die.

This is often a result of their upbringing, being given things they didn’t work for.

Another member is dealing with a son who was involved in the business from its launch. He invested no money, yet always received a paycheck, unlike his owner/parents who’ve had to go without or borrow money in tough times.

He still feels it should be his, but isn’t committed to the business now. Why would his parents think he would act differently if he were in charge?

Here are a couple additional factors that often come into play:
■  Work ethic
If someone is given a title and responsibility without earning it, he or she really doesn’t know what it takes to succeed. Without working up through the ranks, you don’t really know the duties you are now supervising.
■  Favoritism
Too frequently owners promote relatives to positions for which they are not qualified. This does not set well among long-term employees who feel more deserving. It’s also evident in salaries paid to relatives, which are often out of the norm for similar positions.

So what’s the final word on nepotism?
In order to make nepotism work, strong core values in the organization are important, as well as holding ALL employees to these values. Focus on running the business as a business and not as an asset to benefit just the family. ●

Pete Michaels is Chair for Vistage International.