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Nepotism: old story, new twist

Don Schwerzler is founder of the Family Business Institute in Atlanta.

It works, it feels good and it's generally the right thing to do, says Adam Bellow. So why has nepotism been a bad word for so long? Don Schwerzler explains

There's a quaint bed and breakfast in the Appalachian mountain region of the southeastern US that has a long history and a far-reaching reputation for excellence. The accommodations are impeccable and the food is out of this world. Guests at the inn often ask the staff to reveal the secret behind their long-standing success. The staff, most of whom are related to the owners, have a remarkably simple answer: "It's a family tradition." The century-old inn is owned and operated by a family whose tradition demands the absolute best in quality and service. It is a tradition handed down from one generation to the next, and it has served them well. Like untold millions of other families in business around the world, however, they are blatantly and unabashedly guilty of practicing nepotism.

In most family-run businesses, in just about any industry, family members – sons, daughters, nephews and nieces – are given preference over outsiders when it comes to hiring, downsizing and succession. Nepotism in family businesses is an everyday occurrence, although the term is rarely used to describe it. Since the dawn of the industrial revolution and especially in the early days of unions, civil rights and large government payrolls, nepotism has become a bad word. In the competitive world of commerce, particularly in western capitalist economies, nepotism has drawn a lot of fire from non-family workers who insist that the basis for hiring and advancement should be based on merit, not your surname. In fact, many people consider nepotism to be downright corrupt, an insidious practice that undermines the value of hard workers while it provides an unfair advantage to family members who might otherwise be fired for inefficiency, misconduct or slacking off – or who might never have been hired in the first place.

Bottom lines
On the surface, advancement based on meritocracy would seem hard to argue against. It certainly appeals to our sense of fair play. But there is another side to the nepotism issue that, from a strictly business (or investor) perspective, may be even more difficult to argue against. And you don't have to go further than the statistics. Family-run businesses, notoriously rich in nepotistic history, have always tended to fare better than their non-family-run counterparts when it comes to bottom line performance, longevity and, as in the case above, delivery of excellent products and service. Many companies, like third-generation, family-owned Motorola, actually promote family members to become involved in the company because they know it makes good business sense.

None of that is news, of course, to those of us who already know that family enterprise is on the rise – and for a good reason. What may be news, however, is the manner in which nepotism is practiced more and more these days and the new light in which this 'new nepotism' can be viewed. In his book, In Praise of Nepotism, Adam Bellow describes the new nepotism as a sort of pendulum-swing balance between meritocracy and the old forms of nepotism.

Good grooming
In one of those old forms of nepotism, parents expected, if not demanded, the next generation to come into the business, even if the children desired another career path. Parents would groom their offspring for eventual involvement and succession from the time they are born – sending them to the finest schools and insisting that they study those subjects that would best prepare them for their role in the company. Armed with all that education and status, the young man (and sometimes woman) would enter the business at the management level and quickly rise to the top. That traditional approach to nepotism has to some extent become passé. In the latter part of the 20th century, as the practice of nepotism drew more and more criticism from the public at large, parents shied away from pushing their children into the business for fear they might lose valuable employees who felt undermined and disgruntled by family favouritism.

The old nepotism did have its share of partiality and favouritism, often to the point of being elitist or downright unethical. The new nepotism, on the other hand, has some very attractive aspects, even to those non-family employees who have their jobs on the line. First of all, in a new nepotism scenario, the kids take the initiative to come into the business. They don't come asking for a handout; they earn their way in, even if it means earning a graduate degree at their own expense, or working at the bottom of the ladder to learn the business from ground up, or managing the field office in Greenland in the middle of winter. Second, new nepotism creates an environment where non-family executives and employees feel they are on a more level playing field and therefore less threatened by new family members coming into the business. And finally, new nepotism, unlike its predecessor the old, is considered a good business practice that decreases the potential for owners being labelled unfair or immoral.

Hot potatoes
So if new nepotism to some extent falls under the banner of meritocracy and it's statistically better for business, why is there still a fuss about it, especially from people on the political left? Is nepotism another issue for liberals and conservatives to draw lines over? And does that really matter?

The answer to the last question may be the most important and the end of the discussion anyway. As Bellow points out in his book, nepotism has some very deep roots that go all the way back to the first days of commerce, whenever and wherever that was. Nepotism is good business, it's always been around and, if history and current trends are any proof, it's here to stay. You can accept it or not, but nepotism is entrenched in our economy and always will be.

The debate between conservatives and liberals over nepotism, therefore, may be a moot discussion. But it is fascinating. Consider the reviewers of Bellow's book, for instance, whose criticism and comments are clearly divided along political leanings to the left or the right. One left-leaning reviewer writes that Adam Bellow has "invented a new definition of a word" to justify his own advantage as the son of famous novelist, Saul Bellow. Another reviewer was not so kind. His review, titled "Is nepotism sending the US back to the Middle Ages?" attacks Bellow's book with guns blazing, aligning it with an "insidious attack" upon meritocracy that has "suddenly come out in the open." That same reviewer, a New York attorney of some note, closes his review with this surprising summation: "Nepotism and other forms of artificial inherited privilege are a greater threat to freedom and the American way of life than terrorism." Whoa!

On the other side of the political fence stand a number of reviewers who find In Praise of Nepotism and its thesis to be right on. The conservative reviewers, it seems, have a better grasp of what that thesis is in the first place, and what it isn't. One reviewer, writing for a family enterprise-friendly magazine, describes the book as "head torquing revisionism" and supports Bellow's assertion that there is a "misguided war against the advantages of kinship."

The debate over nepotism in business will likely never cease. As long as there is freedom to conduct business in a manner that will best serve the interests of stockholders, owners will look to family first when it comes time to hire, and those who preach meritocracy at all costs will blame them for being unfair. For those of us who preach the advantages of family business, perhaps the whole thing is best summed up in Adam Bellow's own words: "Nepotism works, if it feels good, and it is generally the right thing to do".

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