Is hiring your nephew good for your company?
What are the hidden costs and benefits?
What policies should public companies follow?
By Ron Prokosch
The word “nepotism” in the business community originally referred to the hiring of relatives of the owner of the business. Today, this word has been extended to refer to the existence of employees within any organization that are related to each other either by blood or marriage. Is nepotism a cost or a benefit for an organization? How does it impact morale, loyalty, employee satisfaction, and a firm’s ability to service their customers? These are critical questions that nearly every business must address. Researchers and business leaders agree that there are both costs and benefits to nepotism. However, there is disagreement on its overall impact on the bottom line of a business.
Research on the effects of nepotism has been opinion-based, rather than fact or incident based, and therefore views on the subject vary.
Nepotism pros and cons
The support for nepotism generally presents the following points: • Lower recruiting costs: Nepotism allows firms to inexpensively identify a pool of candidates for positions (i.e. relatives of current employees). Firms that encourage hiring of relatives let their own employees do much of the recruiting for the company. However, where the objective is to hire the most qualified person for the job, limiting your market focus may not accomplish this objective. • Lower training costs: Family members usually know a great deal about the company they are joining, and are more likely to be satisfied with what they find. It has been said that newly hired relatives are more dedicated to learning the job in order to “make their relatives proud”. • Lower employee turnover: It is suggested that family members are often the most dedicated employees. At several of the large businesses with whom we spoke, relatives of current employees are sought out because past experience has shown them to be the most motivated, conscientious workers. These firms have also found that related employees have significantly lower absenteeism. • Higher level of commitment and a sense of ownership: Working on the same team with other relatives creates a greater sense of commitment and personal interest in the success of the company. Employees who know that their family members may be impacted by their actions have an extra reason to want the company to grow and prosper.
• Higher level of loyalty: The opportunity to work with one’s son, daughter or cousin is considered by most employees to be an intangible benefit of working for a company. However, in this day it would be very rare indeed, that a valued employee would stay with a company so that they might have an opportunity later to mentor their son or daughter as employees of the same firm.
• Higher level of morale: A “family-type” environment can boost the morale of all employees, and positively impact customer relations. Thomas Publishing, a large media company in New York City, views an employee’s desire to bring another relative to the company as a great endorsement of the business. “It means that Thomas Publishing is a good, caring place.” (Molofsky, 1999) However, for this to happen it is critical that such climates exist for all employees at all times, which requires strict guidelines. • Higher trust levels: In organizations with a high degree of family involvement, there is often a higher level of commitment to “working through problems.” As one executive stated, “at the end of the day they are all family, and they have to get along …”
In theory, this may support the case for employment of relatives. In practice though, there are many problems and difficulties with managing the trust factor so that it is consistent across all employees and the entire organization and not just reserved for the “inner circle.”
Issues raised by nepotism
• Favouritism: Nepotism provides...
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