Nepotism – the most powerful conflict of all?

In 1973, in speaking to colleagues on the  Cook County Democratic Committee, Mayor Richard Daley of Chicago defended his having directed a million dollars of insurance business to an agency on behalf of his son John with the immortal words: “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”

This analysis aside, nepotism can be a tricky subject to address.  There are, of course, countless instances of nepotism being good for business, as recounted in this 2009 article in Forbes.  Moreover, not all cultures view nepotism-related issues through a Western lens, as described in this earlier post by Lori Tansey Martens:   “I remember conducting an ethics workshop for a major multinational company in Africa. We presented a conflict of interest scenario about hiring a brother-in-law as a supplier, but the participants were aghast at the ‘correct’ answer, which was not to hire the family member’s firm.  ‘It is unethical for me NOT to hire my brother-in- law if he is qualified – and he will do a better job for my company because he is my brother, and therefore more accountable to me,’ said one participant, summarizing the feelings of the entire group.”   Additionally, irrespective of this economic analysis (family ties as promoting accountability), nepotism surely has its roots in evolution – as reflected in loyalty being one of the six universal moral foundations identified in Jonathan Haidt’s landmark book, The Righteous Mind.   Finally, as noted in the Forbes piece, there is no broad legal prohibition against nepotism.  In many settings, it is perfectly legal.

On the other hand, it is not always legal, as (among other things) family members have played significant roles as the vehicles of corruption in FCPA prosecutions, as recounted in this piece in the FCPA Blog.  Indeed, the World Bank has identified nepotism itself as a form of corruption.  Moreover, precisely because of its deep origins in our evolutionary past, nepotism may be the most potent conflict of interest of all.   There are, after all, many things we would do for our children that we wouldn’t do for ourselves.  In a test of strength it is a good bet that family ties will overwhelm those born of less deep-seated fiduciary duties.

Additionally, the harm caused by nepotism is not limited to sub-standard job performance by family members.  It can, I believe, also imperil the sense of organizational justice that serves as the foundation for any ethical culture.  As described in this earlier post (about organizational justice and COIs generally):     “The special harm that COIs can cause to organizational justice arises from their frequently personal nature: because COIs often involve a personal benefit to an individual employee that is denied to others, the latter (i.e., rule abiding employees) can feel personally harmed (from a relative perspective) by the COI in a way that they would not feel, for example, with an antitrust offense or violation of export regulations.” More specifically, the very reasons that make nepotism appealing to the beneficiaries of the practice may make it loathsome to others – i.e., those who don’t share in its benefits –  and this, in turn, can undermine the ethical performance of an organization generally.

Finally, I should stress that I don’t mean to suggest by the way I ordered this post that the nays always have it when it comes to nepotism.  Indeed, consistent with this blog’s focus on “moral hazard”, I find the above-described accountability argument to be intriguing – at least enough to make it worth exploring further.  The point  of this post  is merely that – at least for some business organizations  – nepotism should be a topic for soul searching, and for carrying the ethical analysis further than the late mayor did.