This topic is sticky. It’s ugly. It feels dangerous to talk about. And it’s an issue that impacts multiple departments, not only the supply chain. Worst of all, it’s an “ism.” Today I’m going to tackle the big ugly topic of nepotism: where it tends to show up, what it costs, why supply chain seems particularly susceptible, and what to do if you see nepotism in your own business or team.
Big disclaimer needed: this article is built simply from my own observations and experience, and I have seen a WIDE variety of approaches to nepotism in companies I’ve worked for and with. I also live in the United States and so will be looking at this topic through that lens. I understand other countries have very different cultures and approaches, I am not passing judgement on those approaches. Please take everything I observe here with that grain of salt, I am not a human resources or legal expert and do not claim to be. Note also that nepotism is not always bad, especially if there are appropriate guard rails on how people are given opportunities.
Nepotism and Where It Shows Up
Let’s start with a definition. Nepotism is defined by Merriam Webster as “favoritism (as in appointment to a job) based on kinship.” In practical terms in the corporate world, it often means a company manager or leader is asked to give a specific person an opportunity. That specific person might be a niece or nephew of the CEO/COO/CFO, a child of the company owner, or some other relationship to an existing company employee or shareholder. I will broaden my definition to include mentees of those same high-level stakeholders as I have seen situations where managers are asked to find opportunities for friends or people who are connected through volunteer organizations (sometimes called favoritism or cronyism due to the lack of kinship). For the purposes of this article, I will call all such relationships “nepotism” even without strict family ties.
Nepotism shows up within a company as an executive asking for a specific candidate to be given an internship, a job within the company, or even a promotion based on their relationship to that executive. Sometimes the candidate in question is qualified for the position, sometimes not. Unless it is obvious (such as the candidate sharing a last name with the executive), usually very few people know the candidate was given the opportunity due to the relationship.
Nepotism shows up outside a company in the form of contracts and suppliers to the business. This might be a cousin who owns a lawn care company in town, or a pickleball friend who owns a branded apparel company. I see it most often among hyper-local suppliers (lawn care, snow removal, office remodels, etc.) and for some reason branded apparel (polos with logos on them, conference swag, etc.). I’m not sure why branded apparel attracts this kind of relationship, but I’ve seen multiple companies with shockingly tight ties to their promotional material suppliers.
Interestingly, I have NOT seen nepotism show up more in private, family-owned businesses than larger, publicly-traded companies. Depending on the business size, I have seen the opposite. Especially if those family-owned businesses want to survive past the third generation, they tend to do a good job of putting up some clear boundaries and guidelines to prevent nepotism (fascinating Harvard Business Review article about 3rd generation businesses and whether that is a barrier can be found here). It can also be harder to “hide” nepotism in smaller companies and good employees tend to leave companies with rampant or blatant nepotism.
What Nepotism Costs
Nepotism isn’t always bad. We are constantly told to use our networks to improve our career opportunities and source talent, and nepotism may be an extension of someone using their network. I have had many excellent, brilliant, loyal, and highly driven team members come to me as friends of an executive or company owner. However, I have also seen what nepotism costs a business.
When an executive’s mentee or Little Brother/Little Sister adds diversity to a business, placing that person in a company can help bring a new perspective. More often, nepotism tends to bring more of the same existing mindsets into a company. The CEO’s daughter is likely to think like the CEO and is also likely to come from a similar socioeconomic background. Nepotism tends to cost the benefits diverse backgrounds bring.
When a supplier is chosen due to their personal relationship with an executive, that supplier was not chosen because they bring the best value. Awarding work to a supplier based on a nepotistic relationship might add additional cost, increase risk, or even decrease service levels. Any attempt to justify moving to a different supplier who offers better value tends to get overruled by the executive holding the relationship.
Lastly, a personal story. I once had to fire an employee who I knew was a nepotistic hire. This person’s parent was a close, personal friend of the CEO. They were missing every deadline. Other team members were being forced to pick up their work to keep things moving. I learned later they had thousands of unread emails in their inbox as they were simply ignoring all of their work. Because of their ties to our CEO, it took me ten months to remove this person from the organization, during which time they did absolutely no work for the team. Even at the end, the CEO was asking if there was anything I could do to retain them. Having them as a non-contributing team member for so long was incredibly hard on my team and made me look bad as a leader. I had to document everything and go through several personal improvement plan iterations before I could let this person go. It cost me hours of time, the morale of my team, a bit of my peace and sanity, and some of my reputation with my business stakeholders when their work wasn’t done quickly. So while I’ve had excellent employees who came to me via their personal ties to executives, it also cost a lot when one of these referrals wasn’t performing.
Why Supply Chain is Susceptible
Supply chain and procurement take all kinds. Interview ten supply chain team members and nine of them will have backgrounds outside of the supply chain. I’ve had procurement team members with backgrounds in electronics, marketing, Spanish, engineering, finance, operations, IT support, and a myriad of other places. I’ve had team members with high school diplomas and those with multiple graduate degrees. Due to this diverse background, the supply chain or procurement team can be an easy place to employ someone, regardless of their work or educational experience. We also have a diversity of tasks within a supply chain team. We cover executing and expediting purchase orders, analyzing big data sets, building business cases, negotiating with suppliers, coordinating logistics, running warehouses, optimizing inventory, and helping stakeholders build complicated scopes of work. Those tasks are all different and being part of a supply chain can help people find what they’re best at and how they can fit into a business. Often if someone is coming into a company due to their personal relationship, it’s because they have already exhausted their “first choice” companies or chosen field of work. Now they’re a little lost and trying to figure out where they fit.
The supply chain team also deals with suppliers, so we encounter both internal and external nepotism. As mentioned earlier, executives have their own networks of friends and family, some of whom own potential supplier businesses. Therefore, the supply chain team is dealing with nepotism on all sides of the business.
What To Do About Nepotism
So what do we do about nepotism? It can be easy to decide that unless you’re a CEO, there is nothing you can do to battle nepotism in your business. I don’t believe this is true. Here are some things you can do if you’re asked to put an executive’s candidate on your team or contract with a hand-picked supplier:
- Keep to the opportunity. By this I mean keep any candidate’s employment or new supplier contract as an opportunity instead of a settled matter as much as possible. See if candidates can be an intern or contract employee at first and give them a chance to prove themselves. Put them in the interview pool, but hire them only if they are the best candidate for the position. Start a pilot or trial period for the supplier of six months or a year before signing a five-year contract. See if you can soften the promise slightly and give yourself an exit if it turns out this hand-picked candidate or supplier will prove to be an issue. Frame the conversation with the executive as “their relationship gets them a foot in the door, which gives them an opportunity to succeed.” Most executives won’t stake their reputations on someone disastrous, and framing the opportunity that way also gives them a graceful way out if someone is a bad fit.
- Sometimes you have to play politics. I’m fully aware this is an unpopular opinion. In my experience, there are times you simply have to make it work. This is especially true if you’re ambitious. Playing politics might mean having the sponsoring executive be the one who realizes a candidate or supplier is a bad fit. It might mean pulling some favors to avoid the relationship. On the flip side, if you find the true calling for an executive’s niece and carve out a way for her to add value when she feels lost, you’ve made at least one friend who owes you a favor (and probably two). You’ve also gained a reputation for developing people and bringing out their strengths. Note I am NOT advocating for you to sell your soul. Do not let someone’s privileged relationship cause you to cover for them, lie about their performance to try to impress your boss’ boss, or otherwise undermine your own reputation. Make lemonade with lemons, but don’t pretend the lemons are great when those lemons are rotten and overripe.
- Use the data. If a supplier is costing the company money or an employee is failing to perform, make sure you track the data that shows this result. Conversely, if you think an employee who was appointed by the CEO is failing, their metrics may show success. Try to keep bias out of the conversation as much as possible and use the data to show if the candidate or supplier is the best value for the business. If they’re not, the data can help you gain allies in removing that employee or poorly performing supplier.
- Consider your corporate culture. In the United States, hiring an unqualified employee due to their family relationship is not illegal. It can lead to illegal behavior such as civil rights act violations or harassment, but is not inherently illegal. Before making a big deal about nepotism or causing trouble, consider your company culture. If something happens and you find it personally against your value system, it may indicate it’s time for you to find a new organization rather than meaning you should try to change the system. Keep your own integrity and report illegal behavior, but realize everything happens within its context and culture. If your company is repeatedly making poor decisions based on personal relationships, it may also indicate the business is unsustainable and you may simply have to leave.
- Consider who holds the budget. This is a topic many procurement professionals I know struggle with. It’s very easy to decide it’s our job to protect the business unit from itself and become a compliance “police force.” Ultimately, procurement advises the business. It is our job to highlight the costs, risks, and rewards of any supplier relationship and then let the key stakeholder make an informed decision. This DOES NOT mean a CEO or company owner can always do whatever they want without someone speaking up. It DOES mean that when an executive chooses their cousin, niece, mentee, or brother-in-law to supply an important contract, procurement must highlight the risks and costs of that choice just like any other supplier relationship. Be clear, use the data, and comply with procurement policy (i.e. if the purchase is more than $25,000, it must be bid), and then remember we are here to support stakeholders. The ultimate, well-informed decision belongs to the budget holder.
- Approach negotiation differently. If you know the business unit is not willing to award to any supplier who wins the e-auction, then an e-auction is not your best negotiation tool. We want to retain leverage and partnership with suppliers as much as we can, and part of that is choosing the right negotiation method to maximize value. A supplier appointment via nepotism is the same as having only one supplier in the market, so approach accordingly. As mentioned earlier, consider a trial period with the supplier to prove themselves. See if you can continue to have a secondary supplier in the market to prevent complacency and runaway pricing. Index-link pricing to third-party indices. Keep excellent data records and benchmark within the supplier’s industry whenever possible. Set yourself up for success as much as possible in the negotiation phase of the relationships.
While I wish nepotism was not part of the U.S. business culture and didn’t impact the supply chain more than some other departments, I have also worked with a wide variety of businesses and seen nepotism in many forms. Humans are complicated and our networks truly are important to our personal and professional lives. I firmly believe there are ways to mitigate the negative effects of nepotism in business with integrity, compassion, and thoughtfulness. Thank you for reading this sticky, ugly, dangerous topic; talking about it is the only way we can start to improve the worst parts of nepotistic behavior.
If you’d like to talk about what you’re dealing with on your team and how to navigate it, let’s chat. If you’d like to get these articles weekly straight to your inbox and never miss one, sign up for my newsletter.
My book, Transform Procurement: The Value of E-auctions is now available in ebook, paperback and even hardcover format: https://www.amazon.com/dp/B0F79T6F25
