When Nepotism Destroys Family Relationships

By Prof. Enrique Soriano

In the article “Nepotism in Family Business” by David Bork, featured in Family Business Matters, Bork emphasizes that nepotism holds either inherent goodness or badness. Instead, he asserts that its positive or negative connotation stems from the manner in which individuals have raised their children. Bork’s belief is that the fundamental duty of a parent can be defined as follows: “To raise responsible adults who possess high self-esteem and the ability to function autonomously in society.”

Bork further emphasizes that neglecting to instill these principles creates an environment where children develop a sense of entitlement, viewing themselves as privileged individuals deserving of everything, “This deficiency becomes a ripe incubator for problems to emerge when the child works in the family business. Children who come to the business with an attitude of entitlement will think they are exempt from the rules that apply to “ordinary people.” They often don’t understand that they must earn their place in the company through hard work and consistently-demonstrated competence. A seemingly small thing like coming to work on time is an example.”

Nepotism Turns Ugly

Company X is a long-standing family business specializing in manufacturing and distributing agricultural and aqua products in the Asia Pacific region. The founder, Mr. L, built the business from scratch and effectively transitioned its ownership and leadership to his son, ML, who was subsequently promoted to the position of president. Unfortunately, as the company expanded its operations, the challenge of nepotism initially surfaced following the employment and promotion of relatives who seemed inadequate to handle tasks in management and operations.

An entrepreneur deeply rooted in the traditional Chinese way of running a family business, Mr. L firmly believed in keeping the business within the family and has a strong preference for employing relatives in key positions. This has led to multiple instances where family members, apart from his children, including nephews and nieces, were hired without undergoing a rigorous selection process. Non-family employees within the organization repeatedly voiced their concerns (though muted for fear of losing their jobs) about the unfairness of these practices, as they felt bypassed for promotions and job opportunities despite their qualifications and contributions to the company.

The negative impact of nepotism became evident in the company’s organizational dynamics. The lack of meritocracy resulted in a sense of disillusionment among talented non-family employees, leading to reduced motivation and productivity. Skilled individuals that dedicated many years to the company found their career progression blocked by family members with less experience and expertise. This created an atmosphere of resentment, affecting team cohesion and collaboration. Consequently, the company struggled to retain top talent and experienced higher turnover rates.

In-law As Procurement Head 

In addition to the challenges of nepotism, another prominent issue arose when MJ appointed his wife as the head of the procurement unit. Typical of many family employment where blood was more important than an individual’s skill set, the wife never had any experience related to the fundamentals of running a purchasing department. Her appointment was solely based on trust consistent with the founder’s inherent preference in hiring family members.

Months into her new role as head, the wife started receiving gifts from suppliers like foreign travel and hotel accommodations disguised as official business transactions. The suppliers also provided assistance during family celebrations, particularly by sponsoring her children’s birthday parties, and showered her with expensive gifts, mainly household appliances and furniture packages. It was obvious that these perks and benefits were offered to her in exchange for favorable approval of purchasing contracts without any bidding or shortlisting of suppliers.

This conflict emphasizes the importance of involving family members in a business properly, as seen in successful cases like Alliance Global Inc. and JG Summit Holdings Inc., which AGI CEO Kevin Tan and JG Summit President and CEO Lance Gokongwei will be showcasing in an event on August 19, 2023 where I will be a moderator and co-resource speaker together with Global thought leader and Harvard Prof. Josh Baron entitled “Family Business Continuity: Ensuring a Fail-Proof Succession Plan.”

This event will look into the significance of eliminating nepotism, among others, in any successful family-run enterprise. I urge all interested families looking to ensure their business success to promptly register and secure their slots as seats are very limited. For additional information, you can call Marivi Estrada of ICON Executive Asia at 0977-835-5533.