Why nepotism can have its merits

2007

Many smaller, family-run businesses employ HR practices that are conventionally frowned upon - such as hiring people on the basis of family relationships rather than skills. But according to new UK research, this can bring advantages.

The Advanced Institute of Management Research found that such apparently unproductive and uncompetitive work practices – including organising work according to social networks within the firm rather than via a planned workflow – may have benefits as well as disadvantages depending on the type of firm involved.

Conventional ideas about human resource management practices and company performance needed rethinking when it came to small and medium enterprises (around 95 per cent of UK businesses) and especially family firms.

In particular, a wider move to High Performance Work Systems (HPWS), or an ideal set of HR practices, may not be appropriate for many small firms, it suggested.

The research, which identified seven types of firm – modern, closed niche, fraternal, atomistic, traditional family, sweatshop and paternalistic – found that, in "fraternal" firms that had an established niche, workers were often hired through word-of-mouth.

Family resources often helped to sustain the business and workers were often treated as the equals of managers.

On the downside, while workers' preferences were often treated seriously the firm remained the property of the owner-manager, and workers who questioned the brotherly and harmonious image could be forced out, it concluded.

The ability to implement High Performance Work Systems depended very much on the type of firm.

The modern firm was most likely to be able to use ideas associated with high performance, although it could find that it lacked the management skills to implement such systems successfully.

For others, such as the closed niche, the fraternal and the traditional family the structured approach of an HPWS could go against existing informality and prove counterproductive, especially if it sparked resistance to change among family members, employees or both.

"Through understanding the characteristics that define the various types of firm, and knowing where their firm fits into the framework, managers and owners may be able to better understand the relationship between employment relations and performance, and manage that relationship for the benefit of the firm," said lead author and AIM senior fellow Paul Edwards.

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