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Relatives and Business: Mixing It Up

Corporate nepotism has long been frowned on. But with a surge in family-run companies, hiring kin becomes a common practice.

July 23, 2006|Hanah Cho | Baltimore Sun

It's practically a family affair at Southwest Airlines. The company has 1,100 married couples among its 31,000 employees, and spouses and family members are encouraged to join the ranks.

But Southwest follows a more stringent hiring rule for executives -- it generally will not hire a family member of management.

"We make it a point not to do that," said spokeswoman Whitney Eichinger. "It's a matter of perception.... we wouldn't want to have employees perceive that that person would get special treatment."

Corporate governance watchdogs and others generally frown on public companies hiring family members. But the practice occurs, primarily because of the growth of family-owned businesses and companies that view such hiring as a chance to build loyalty, trust and responsibility.

"Not only has it always been widespread, it seems to be making a major comeback," said Adam Bellow, author of the 2003 book "In Praise of Nepotism."

Experts said nepotism could produce hard feelings if workers thought they had been passed over for promotions because they lacked connections with management. But most family-run companies make it clear how succession will take place.

Unless something goes wrong, most experts say, nepotism is something workers and shareholders often tolerate. Some scandals involving public companies have touched on nepotism claims, but the issue has not generated a furor for reforms, experts say.

Joshua A. Newberg, who teaches at the University of Maryland's Robert H. Smith School of Business, called nepotism a "perennial issue in the background" that drew scrutiny from time to time.

"Shareholders are concerned with performance, so it's likely to raise eyebrows and likely to be a concern if nepotism correlates with poor performance or less than optimal performance," he said. "But if it doesn't, it's going to be a matter of indifference."

Some public companies have policies banning nepotism. Others, such as Southwest, have guidelines on supervision when relatives are involved.

The Securities and Exchange Commission requires companies to report any business dealings over $60,000 done with executives, board members or any of their family members.

Hiring family members, especially as executives, raises questions about whether the company is tapping the most qualified candidates or whether favoritism plays a part. And some worry that family problems could spill over to the business.

"I would advise a client that if you have two equally qualified candidates, it's safer not to hire the family member," said Ross A. Albert, a partner at Morris, Manning & Martin in Atlanta, and a former senior special counsel for the SEC.

But experts contend that a job candidate with a familiar surname should not be excluded altogether.

"I certainly would not want to see highly qualified executives ruled out simply because of DNA," said Edward Nebb, an investor-relations consultant at Euro RSCG Magnet in New York, a marketing and public relations firm. "It's obviously incumbent on management to make the case as to why a certain family member is, in fact, the best choice for the job."

Bellow, the author, said: "It is much more efficient as an employment practice to hire someone related to an existing employee," partly because family members will act as informal overseers.

"If I bring you into Random House and you screw up, it looks bad for me," said Bellow, an editor at large at Doubleday, a division of Random House. "It's in my interest to make sure you succeed."

At Southwest Airlines, the practice creates loyalty and commitment among employees, Eichinger said.

"We have employees who have been here 15, 20, 30 years. Children have grown up with Southwest," she said. "They realize how great the company is and they realize they want to work here."

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