The term nepotism (and even worse, cronyism) carries a negative connotation: favoring a relative (or friend) in an employment situation without considering the individual's suitability for the job. Although there can be obvious benefits associated with hiring kin (e.g., a sense of trust, swift learning of job-relevant content, loyalty, etc.; Bellow, Reference Bellow2003; Jones & Stout, Reference Jones and Stout2015), the term itself implies that nepotism is a bad thing, and organizations often take steps to keep bad things from happening. Jones and Stout (Reference Jones and Stout2015) have argued that sweeping antinepotism policies in organizations eliminate the positives associated with hiring via a social connection preference, and such policies can lead to unfair discrimination. As industrial and organizational (I-O) psychologists, however, if we do our job—and by that I mean exemplary and objective screening, hiring, and performance assessment—and if we adequately manage the negative impressions that may reside in the minds of employees regarding nepotism, nobody gets hurt.

Nepotism can be what economists call “Pareto optimal”; that is, benefiting one party without harming another. If organizations employ best practices in hiring, evaluating, and promoting employees, nepotism can in fact be beneficial without harming the organization or its employees. If all candidates for a position are considered through a fair screening and evaluation procedure, and the individual with a social connection happens to be the best candidate for the position, no one is harmed. This, however, does not do anything about perceptions of nepotism/cronyism, and these perceptions by employees may affect employees’ satisfaction, motivation, and opinion of the organization and its practices.

Therefore, organizations need to do two things: (a) Ensure that evaluations of new hires and procedures for performance assessment are objective, fair, and valid measures of competence in performing the job, and (b) ensure that organizational leadership is direct and straightforward in combating employee perceptions of nepotism and cronyism by authentically acknowledging that social connection preferences exist but demonstrating that they do not lead to unfair favoritism in hiring, promotion, or treatment. To the latter point, it is the perception of nepotism in its most negative sense that really causes organizational problems.

Jones and Stout (Reference Jones and Stout2015) have essentially argued for nondiscrimination based simply on family relationships, and this makes sense. The same principles that protect against unfair workplace discrimination based on individual characteristics (e.g., race, gender, religious preference, age, etc.) should apply, and one might argue for a form of affirmative action for relatives and friends—if all other qualifications are equivalent, then preference might go to the friend or relative because of the associated positive benefits mentioned previously. Again, the problem is the perception of other employees. Just as in affirmative action, some employees will draw the conclusion that the individual was hired primarily because he or she is a member of the salient group (in this case, being a relative rather than being an ethnic minority). The key to preventing these negative attitudes is the quality of the screening and evaluation program for new hires and promotions. If personnel procedures do indeed assess relevant KSAOs in hiring or accurately and objectively measure on-the-job performance for promotions, and if the fairness of these procedures is known to employees, then negative perceptions of nepotism and cronyism should be mitigated substantially. But of course, this is an empirical question because there has been so little research attention paid to nepotism and cronyism in the workplace (Jones, Reference Jones2012).

What constitutes best practices in screening, selection, and promotion? I-O psychology has decades of research and a rich literature on this topic. This includes the use of standardized tests in hiring (e.g., Schmidt & Hunter, Reference Schmidt and Hunter1998) and the use of behavior-based assessments of performance, such as simulations and assessment centers (Howard, Reference Howard, Conger and Riggio2007). In evaluation and promotion, 360-degree appraisals and balanced scorecards represent examples of state-of-the-art technologies (London, Smither, & Diamante, Reference London, Smither, Diamante, Conger and Riggio2007). In addition, it is important that rank-and-file employees be made aware that the organization uses these methods to be fair and ensure that the most qualified individuals are hired and promoted.

Of course, there are limitations to how accurately I-O psychologists can assess employee/leadership potential and performance, particularly in complex, upper level management/leadership positions. Yet, if the organization makes an effort to hold relatives (and friends) to the same strict standards of demonstrating competence, this may tend to reduce, to some extent, rank-and-file employees’ perceptions of favoritism.

Combating perceptions of nepotism (in its negative sense of unfair hiring/promotion) is the task of the organization's leadership. By emphasizing and demonstrating that the organization uses objectively fair hiring and promotion practices, leaders can play an important part in reducing employees’ perceptions of favoritism. Mhatre, Riggio, and Riggio (2011) argued that authentic leadership, with its relational transparency and sense of fairness and ethicality, is a good model for leaders to follow when dealing with issues of nepotism and perceptions of favoritism. Of course, this is likely to be an ongoing effort on the part of the organization's leadership. Mhatre et al. (2011), however, suggested that there are individual differences in how employees might perceive the hiring and promotion of relatives, with some feeling that nepotistic hiring is acceptable (i.e., “tolerance for nepotism”) and others quite opposed to and upset by the practice. Yet, it is important from a leadership perspective to emphasize that selection, promotion, and evaluation criteria are fairly applied to all employees.

In summary, if organizations follow the advice of I-O psychologists, utilizing best practices in hiring, evaluating, and promoting employees, and if organizational leadership authentically works to emphasize that fairness in personnel decisions is a priority, nobody gets hurt by nepotism. However, if organizations suffer from negative perceptions of nepotism, cronyism, and generally unfair practices, there may be adverse effects in employee satisfaction, loyalty, and perhaps performance/productivity. We actually know little about the impacts of perceptions of nepotistic unfairness, unfortunately, because there has been so little empirical research on nepotism and perceptions of nepotism.