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Research: Nepotism not always bad

Nepotism might have a terrible reputation, but it isn’t always bad for a family business, according to new research.

Nepotism might have a terrible reputation, but it isn’t always bad for a family business, according to new research.

The conceptual study, published in the March issue of the journal Family Business Review, argued businesses that rely heavily on tacit knowledge could benefit from a particular type of nepotism – dubbed “reciprocal nepotism” by the researchers.

Lead author Peter Jaskiewicz, assistant professor at the University of Alberta’s School of Business, Department of Strategic Management and Organization, told CampdenFB: “Tacit knowledge is the type of knowledge that you can’t go and write it down or go to a class and tell people to read this book. These are the types of things that you learn over time by doing, by interacting with people.”

Examples would be learning how to make a very good wine or a handcrafted leather bag – there are books that teach the basic skills, but expertise is learnt on the job over years.

It is easier to pass on this type of knowledge “if you have a similar socialisation and know each other really well”, which is why family businesses can benefit from hiring family members, he said.

“If you lose this information, you might lose your competitive knowledge so it’s really important that there is someone who will protect it and keep it in the company,” Jaskiewicz added.

Because of close ties, family members are also less likely to leave the firm after learning this knowledge compared to other employees – meaning the company is more likely to retain and benefit from core skills.

“For many companies, tacit knowledge has been shown to be the difference in their competitive advantage. It distinguishes them and makes them better,” added Jaskiewicz.

However, it all depends on the type of nepotism practised at the company, the researchers said.

“What makes families so special is that they can develop ‘generalised exchange relationships’ – these are relationships that exist not to profit from each other but where people are happy to invest in the relationship just to make it better over time. You do not necessarily expect to get something back,” said Jaskiewicz.

“Such relationships are rare outside of families, so what we call reciprocal nepotism can be an advantage for such an organisational context,” he said. Under reciprocal nepotism next-gens are hired based on the family’s “interdependence, previous interactions and cultural norms”, rather than because of a sense of entitlement.

“When you look at particular business contexts where it is important to trust someone 100% and to rely on someone 100%, we realised that family businesses are quite successful in industries where there is a lot of tacit knowledge,” he added.

Although the study in Family Business Review was conceptual, Jaskiewicz and a team have since carried out a small-scale study to test the theories. They looked at 21 wine-makers in Germany – which were in their 11th generation on average – with the initial data confirming the hypothesis.

However, Jaskiewicz said more research was needed. 

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