From the Dinner Table to the Boardroom: The Effects of Nepotism on Family Businesses

This study explores the consequences of nepotism on family businesses and their members from a sociological perspective. Through case studies of 18 privately-owned family businesses in the greater Baltimore-Washington metropolitan area, this research investigates the conditions under which nepotism is beneficial or problematic for the family business. More specifically, it addresses the role the structure and culture of the business plays in developing nepotism practices, and how these practices affect the interpersonal relationships of multiple generations of family and nonfamily members, the success of these members, and the overall success of the business.The case studies included quantitative data elicited from self-administered questionnaires and qualitative data extracted from in-depth interviews with founder/senior family members, junior family members, and key nonfamily members from each firm. The survey provided data on the structural and cultural characteristics of the firm, policies and procedures in regard to nepotism, and information regarding the statuses and roles of its members. However, because the sample size was not adequate enough to produce meaningful statistical analyses, only frequency statistics were generated. While this indicates a slight methodological shift, the attitudes and actions (interpersonal relationships) of members of the family firm as well as the ”"informal organization"“ were always intended to be the foci of the research. To compliment the evidence gathered through the in-depth interviews and survey, data were also drawn from observations, texts, documents, and artifacts including company manuals, organizational charts, genograms, and human resource policies and procedures. Although nepotism tends to have a negative connotation in American culture, the empirical evidence from this research implies that nepotism in itself is not inherently negative or positive but that the outcome is dependent upon nepotism policies and practices. While both negative and positive consequences surfaced in the data, the findings suggest that equity, not necessarily equality, is essential to ensuring positive outcomes for the family firm. This supports previous literature which is based primarily on anecdotes and commentary of individuals involved in the field of family business. The data on the transparency of these policies and practices were inconclusive, so more research is necessary to fully understand the conditions under which nepotism is beneficial or problematic for the family business.