Family business and the drawbacks of nepotism

The term family business can bring to mind an archetypal image of a successful enterprise, run by multiple generations of kindred, that is passed down through the family. Take care to walk the fine line between what is best for your organization and what is best for family members.

Nepotism is a form of favoritism in business when family members are favored over non relatives. While it is a given that a family run business will employ family members, nepotism, like all forms of favoritism, still has negative connotations.

Nepotism and ethics

Family businesses are often structured as sole proprietorships or partnerships between family members. When it comes time to hire a new employee or promote someone into a new role, offering the job to a relative is common practice.

One of the concerns with nepotism is that it weakens the business by hiring those in a favored position, rather than someone most qualified for the role. While a relative may have grown up within the business and understands its needs, it can leave capable, non family employees feeling overlooked. Nepotism can fuel employee disengagement if they feel they have no further opportunities for growth.

Is nepotism legal?

While nepotism is not prohibited by law, there are federal laws prohibiting workplace discrimination. Categories for workplace discrimination include race, ethnicity, religion, age and gender. If the practice of nepotism in your business discriminates, even inadvertently, against employees of any of the protected categories you may be guilty of workplace discrimination.

Additionally, nepotism can create a hostile work environment if the favoritism creates an uncomfortable work environment for coworkers. Appointing only family members to key positions, regardless of their suitability, can negatively impact the workplace and leave your business exposed to harassment or constructive discharge claims.

The takeaway

Nepotism is not an inherently negative practice. If you have been grooming your child since infancy to perform a vital role within your organization, they may be a perfect fit and bring a wealth of intellectual capital. Conversely, your child may have no interest in the business or performing basic duties and you would be better off hiring or promoting someone more qualified. Being ethical in your business practices will help your organization succeed and prevent lawsuits.