Is Nepotism Good or Bad - Peter Jaskiewicz PDF

470841
41Family Business ReviewJaskiewicz et al.
FBRXXX10.1177/08944865124708
Is Nepotism Good or Bad? Types

of Nepotism and Implications for
Knowledge Management
Family Business Review

XX(X) 119
The Author(s) 2013
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DOI: 10.1177/0894486512470841
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Peter Jaskiewicz1, Klaus Uhlenbruck2,

David B. Balkin3, and Trish Reay1
Abstract
In contrast to the literature that portrays nepotism as generally problematic, we develop a conceptual model to
explain why some family firms benefit from nepotism while others do not. We distinguish two types of nepotism
based on how nepots are chosen. We elaborate the differences between entitlement nepotism and reciprocal nepotism.
We propose that reciprocal (vs. entitlement) nepotism is associated with three family conditions that indicate
generalized (vs. restricted) social exchange relationships between family members. We also suggest that generalized
social exchanges are valuable to firms because they facilitate tacit knowledge management that can lead to competitive
advantage.
Keywords
family business, nepotism, social exchange theory, tacit knowledge management
Nepotism is an owners or managers preference for hiring family members (nepots) rather than unrelated job
applicants (Bellow, 2003). Nepotism is a common hiring mechanism in (family) firms where families use
their control to hire family memberstherefore perpetuating family involvement over time and across generations (Chrisman, Chua, & Litz, 2003; Chrisman, Chua,
Pearson, & Barnett, 2012). It is thus the practice of nepotism that facilitates commonly held family goals of
passing the firm leadership on to the next generation (Le
Breton-Miller & Miller, 2006).
However, since nepotism discriminates against nonfamily members, it has been characterized as detrimental to society (Weber, 1958). Some studies show that
nepotism can be detrimental to the firm itself (Bloom
& Van Reenen, 2007; Cialdini, 1996; Kets de Vries,
1996). Yet, in spite of a long-standing belief that nepotism is harmful, there have been surprisingly few studies that specifically examine nepotism (Vinton, 1998).
Instead, researchers have attempted to determine the
impact of family involvement (assuming nepotism) on
firm performance. What is interesting is that these

studies show either positive or negative consequences
of potential nepotism. For example, research on altruism in family firms explains how a desire to look after
the next generation can reduce firm performance
(Schulze, Lubatkin, & Dino, 2003). On the positive
side, research investigating stewardship in family
firms suggests that continuous family ownership can
improve firm performance (Anderson & Reeb, 2003;
Miller & Le Breton-Miller, 2005).
In this article, we develop a conceptual model to
explain why some family firms benefit from nepotism
1
University of Alberta, Edmonton, Alberta, Canada

The University of Montana, Missoula, MT, USA
3
University of Colorado, Boulder, CO, USA
2
Corresponding Author:
Peter Jaskiewicz, Department of Strategic Management and
Organization, School of Business, University of Alberta, 3-23 Business
Building, Edmonton, Alberta, Canada, T6G2R6
Email: peter.jaskiewicz@ualberta.ca
Downloaded from fbr.sagepub.com at MARQUETTE UNIV on May 20, 2016
Family Business Review XX(X)
while others do not. We know that many family firms

practicing nepotism meet or exceed industry profitability on average (Anderson & Reeb, 2004; Miller,
Le-Breton Miller, & Lester, 2011). However, we do not
know why nepotism seems to be advantageous only in
some family firms (Bellow, 2003; Lee, Lim, & Lim,
2003). We draw on social exchange theory (SET) to
identify how nepots are chosen and what consequences
the particular type of nepotism can carry for organizations. We identify two types of nepotismreciprocal
and entitlement nepotism. Reciprocal nepotism is associated with three family conditions (interdependence,
extent of exchanges, and norms that support obligations
to family members). These conditions can lead to generalized social exchange relationships between family
members in family firms. Since generalized exchange
relationships are potentially important to effective tacit
knowledge management (TKM), we propose that reciprocal nepotism can improve a firms ability to engage in
TKM and thus maintain or improve competitive firm
advantage. Entitlement nepotism, in contrast, occurs
without consideration of family conditions. It can lead
to restricted social exchanges among family members in
firms and thus ignore potential benefits associated with
family ties.
The literature shows that there are drawbacks of hiring nepots with low formal qualifications (Lee et al.,
2003; Prez-Gonzlez, 2006). However, we propose
that a consistent policy of hiring family members can be
advantageous in organizational contexts where generalized social exchanges are critical to firm performance
(e.g., TKM). Our argument is based on studies showing
that family relationshipsin contrast to relationships
between nonfamily memberscan be beneficial
because they offer additional potential for generalized
social exchanges that come with long-term commitment
and indirect reciprocity (Dabos & Rousseau, 2004;
Jung, 1990; Litwak & Szelenyi, 1969; Rook, 1987;
Stewart, 2003; Wood & Robertson, 1978). Similar to
other relationships, the quality of family member social
exchange relationships and underlying reciprocity will
vary. We discuss the consequences of this variation for
family firms and link them to advantages for TKM.
The effective management of tacit knowledge can be
a critical factor associated with organizational performance and competitiveness (Cabrera-Surez, De SaPrez, & Garca-Almeida, 2001; Coff, Coff, & Eastvold,
2006; Matusik & Hill, 1998). However, managing tacit
knowledge is a difficult, long-term, and costly process
often characterized by failure (Kogut & Zander, 1993;

Szulanski, 2000). Research suggests that stable, longterm, trust-based relationships are important foundations
for effective TKM (Andrews & Delahay, 2000; CabreraSurez et al., 2001; DEredita & Barreto, 2006; Lee et al.,
2003; Levin & Cross, 2004; Turner & Makhija, 2006).
By considering nepotism in organizational contexts
where tacit knowledge is important to firm competitiveness, we emphasize potential connections between family
ties, generalized exchange relationships, and competitive
advantage. Moreover, we point out contingency factors
that may moderate the strength of the relationship
between generalized exchange relationships, TKM, and
competitive firm advantage.
Our article contributes to the literature on family
firms by developing a model that explains why some
family firms that practice nepotism outperform the market while others underperform or fail. We contribute to
the social exchange literature by using the case of nepotism to focus attention on the valuable potential of family ties and family conditions that indicate generalized
social exchange relationships. Generalized exchange
relationships are a form of family social capital (Long &
Mathews, 2011) and reciprocal nepotism is one mechanism through which families can use such family social
capital to the benefit of firms (Arregle, Hitt, Sirmon, &
Very, 2007; Pearson, Carr, & Shaw, 2008). Our model
suggests that generalized exchange relationships
between family members can benefit TKM which in
turn can improve firm competitiveness.
In the following section, we review research on
social exchange relationships and underlying reciprocity. Next, we distinguish types of nepotism based on
how nepots are chosen. We propose that reciprocal (vs.
entitlement) nepotism is associated with three family
conditions that indicate generalized (vs. restricted)
social exchange relationships between family members.
Based on this, we develop propositions that explain how
reciprocal nepotism can improve TKM, which in turn
can support firm competitiveness. We conclude with a
discussion of implications for future research.
Social Exchange Relationships

and Reciprocity
Understanding social exchange relationships is critical to
understanding nepotism because the decision to hire a
family member is made within the context of already
developed social relationships with multiple opportunities
Jaskiewicz et al.
for exchange. Malinowski (1922), Homans (1958), and
Blau (1964) drew attention to the importance of social
exchange (in contrast to the standard models of economic
exchange), explaining how the social behavior of actors
(i.e., individuals) was critical to understanding social life
and the workplace. SET focuses on the nature of recurring
exchanges between actors, noting that they are based on
relationship, reciprocity and exchange (Coyle-Shapiro
& Shore, 2007, p. 166). All social exchanges are based on
actors perceptions of a costbenefit analysis between giving and receiving and are thus motivated by potential
returns. In particular, actors focus on the immanent nature
of returns and on how difficult it would be to achieve
those returns elsewhere (Blau, 1964; Homans, 1961;
Lvi-Strauss, 1969). In social exchanges an individual
believes that the exchange partner will reciprocate over an
unspecified period of time. This expectation of reciprocity
is one reason explaining the cohesiveness of social groups
(e.g., Long & Mathews, 2011).
Research distinguishes restricted and generalized
social exchange relationships; these exchanges form
two ends of a continuum (e.g., Uehara, 1990).
Generalized exchanges are trust-based and person-oriented; each exchange aims at enhancing the underlying
relationship. Actors are often interdependent and strive
for rare, socioemotional goods in such social exchanges
(Blau, 1964; Cotterell, Eisenberger, & Speicher, 1992).
Partners in these social exchanges apply implicit rules
and develop long-term affiliations (Cropanzano &
Mitchell, 2005; Shore, Tetrick, Lynch, & Barksdale,
2006). Reciprocity in such exchanges is indirect (e.g., to
a third person) rather than direct (Uehara, 1990). In contrast, restricted exchange relationships are based on the
idea of quid pro quo. They are consequently transactional in nature and focused on direct reciprocity to
receive a particular good (Long & Mathews, 2011;
Uehara, 1990).
Studies suggest that the type of exchange relationship
has implications for the employees behavior and performance (Dabos & Rousseau, 2004; Foa & Foa, 1975;
Rousseau, 1989, 1995). Shore et al. (2006, p. 858)
explain that [b]efore employees can develop an affective attachment to their employers, they must first believe
that their employers are committed to them. Hence, differences in social exchange relationships relate to different levels of personnel investment and trust (Brown &
Brown, 2006) and explain different levels of outcomes in
individual and team performance (Bowen & Ostroff,
2004; Collins & Smith, 2006; Fulmer, Gerhart, & Scott,
2003). In particular, previous studies show that generalized social exchanges encourage organization citizenship behavior, affective commitment, tenure,
identification with the organization, stewardship, and
individual performance (Cropanzano & Mitchell, 2005;
Long & Mathews, 2011; Shore et al., 2006).
Whereas SET refers to exchanges between individuals, employeeorganization exchange assumes that the
benefits of social exchanges between individuals will
also accrue to the organization (Coyle-Shapiro & Shore,
2007). For example, an employee who shares a generalized social exchange relationship with a manager will
reciprocate with care and support to other employees in
addition to the manager because she or he generalizes
her or his obligation to reciprocate to other parties in the
organization. Therefore, generalized social exchanges
extend beyond dyadic relationships and can, hence, be
valuable to organizations. In the following section, we
explain how nepotism types can be distinguished based
on the social exchange relationship that family decision
makers share with a nepot.
Nepotism Types Based on Social

Exchange Relationships
Nepotism is defined as hiring based on family ties and
thus it discriminates against nonfamily members.
However, even within the family member pool, nepotism decisions may favor particular family members
while ignoring others. In other words, nepotism restricts
the pool of job applicants who will be considered in a
family firm. For example, nepotism can be based on
asymmetrical altruistic behavior (Kellermanns &
Eddleston, 2004; Schulze, Lubatkin, Dino, & Buchholtz,
2001; Schulze et al., 2003), biological (i.e., gene survival, fitness), familial (i.e., continued family legacy),
or cultural reasons (e.g., primogeniture: the oldest son
takes over; Bellow, 2003; Brown & Brown, 2006;
Hamilton, 1964). Previous literature has also shown that
nepotism can be independent of family member competence (Bloom & Van Reenen, 2007; Prez-Gonzlez,
2006). We suggest that family conditions indicative of
social exchange relationships between family members
may be additional selection criteria in nepotism decisions.
Most family research has related family involvement
in firms to organizational behavior and performance.
However, after controlling for family involvement, family firm behavior and performance still vary (Chrisman
et al., 2012; Chua, Chrisman, & Sharma, 1999). An

emerging stream of literature suggests that family goals
differ across firms and can explain firm behavior better
than mere family involvement. This research stream discusses the so-called essence of what family means for
businesses (i.e., the goal to hand over the firm to the
next family generation; Chrisman et al., 2012). We suggest that a finer grained analysis of nepotism helps
understand the essence of family in the context of firm
involvement. Thus, nepotism types could be an indicator to distinguish behavior and performances of firms
with family involvement.
In developing our model, we assume the context of a
family-controlled business where the family makes hiring decisions. When this family business has a critical
position to fill, the preference is to hire a family member. However, the type of family exchange relationships
can vary significantly among family members. We propose that nepotism types can be distinguished based on
family conditions that are indicative of the type of social
exchange relationship between family members.
Entitlement Nepotism
Hiring that is based on family ties without consideration
of family conditions is what we refer to as entitlement
nepotism. Entitlement nepotism can occur, be stable and
supported by others on the basis of family or cultural
traditions (Csikszentmihalyi, 1990). Because it can be
so deeply embedded, this type of nepotism can also be
dysfunctional, dangerous, and detrimental to firms
(Bloom & Van Reenen, 2007; Prez-Gonzlez, 2006).
The dangers of entitlement nepotism are most likely to
unfold in the longer term. Entitled nepots may feel little
obligation to achieve performance expectations (Bloom
& Van Reenen, 2007; Stewart, 2003). Nepots may have
been hired for altruistic familial reasons. After hiring, this
rationale may be reflected in positively biased performance evaluations of the nepot (Lubatkin, Schulze, Ling,
& Dino, 2005) and less critical feedback to nepotseven
when the nepot fails to achieve expected business goals
(Beckhard & Dyer, 1983; Kets de Vries, 1996). Schulze
et al. (2003, p. 475) wrote, altruism compels parents to
care for their children, encourages family members to be
considerate of one another, and makes family membership valuable in ways that both promote and sustain the
bond among them. However, altruistic behavior can be
exploited by the nepot. The family business literature has
shown that altruism toward family members can have
negative impacts on the parentchild relationship when it

increases the childs feelings of entitlement. When
resources flow only one way (e.g., father to son), this
asymmetrical altruism reflects restricted exchange relationships (Kellermanns & Eddleston, 2004; Lubatkin,
Durand, & Ling, 2007) that can negatively affect firm
performance (Schulze et al., 2001, 2003).
Empirical studies support the potential detrimental
effect of what we refer to as entitlement nepotism.
However, a finer grained analysis suggests that the effect
may be associated with particular family selection conditions. One example where entitlement nepotism is likely
to occur is the case of primogeniture. Primogeniture by
definition favors the oldest son as successor while discriminating against other family as well as nonfamily
members. Bloom and Van Reenen (2007) show that businesses which award positions to the oldest son as a rule
significantly underperform other companies. When succession is determined at birth, it is more likely to lead to
restricted exchange relationships because interdependent
exchanges between father and son are not required. Put
differently, if the nepot has little reason to develop a generalized exchange relationship with other family members, his potential longer term benefit to the family firm
is severely limited. Entitlement nepotism might therefore
indicate a short-term focused type of family essence.
Restricted family exchange relationships can jeopardize
the goal of maintaining firm control across generations
by threatening family cohesion (Long & Mathews, 2011)
and firm performance (Bloom & Van Reenen, 2007).
Entitlement nepotism hence reflects the possibility that
families will hire family members who are nonbeneficial
or even harmful to firm operations.
Entitlement nepotism mirrors the model of man that
underlies the literatures on asymmetrical altruism, agency
theory, and transaction cost economics in family business
(Long & Mathews, 2011; Pollak, 1985; Schulze et al.,
2003). The underlying assumption is that an agentic relationship between family members can involve egoistic
goals, information asymmetries, low levels of trust, and
eventual exploitation of exchange partners. Entitled
nepots are more likely to exploit family firm resources for
personal gain rather than to use them for the collective
benefit of current and future family firm owners.
Reciprocal Nepotism
Nepotism associated with the family conditions of interdependence, previous interactions, and cultural norms
Jaskiewicz et al.
that support obligations to family members is what we
refer to as reciprocal nepotism. Reciprocal nepotism
extends previously established perspectives on nepotism outcomes and helps explain the potentially superior performance of firms that take advantage of
generalized exchanges among family members in their
employment policies.
Although family exchange relationships vary significantly, they hold more potential than nonfamily relationships for a long-term, stable, and generalized social
exchange relationship and indirect reciprocity (Jung,
1990; Litwak & Szelenyi, 1969; Rook, 1987; Wood &
Robertson, 1978). The act of nepotism can select a family member who shares a generalized exchange with the
family decision makers. In such cases, the nepot will
feel indebted to the family member for hiring him or her.
Such symbolic value of reciprocal behavior (acts of
trust) has been identified as a key factor in establishing
and enhancing generalized social exchanges (Molm,
Collett, & Schaeffer, 2007); Lubatkin et al. (2007)
referred to such behaviors among family members as
psychosocial altruism. In this case, social exchange and
underlying norms of reciprocity are not only more probable from a normative perspective (I have to) but also
from an affective, stewardship perspective (I want to).
In this context, nepotism is part of an exchange that
encompasses obligations to reciprocate and strengthens
the generalized social exchange relationship between
family members, which in turn explains how stewardship behavior can occur in family firms (Long &
Mathews, 2011). Stewardship theory suggests that goal
alignment and mutual trust result in individuals putting
aside their own interests and acting in the organizations
interest (Davis, Schoorman, & Donaldson, 1997). The
higher the level of mutual trust and goal alignment
between a hiring family member and nepot, the greater
the latters incentives to reciprocate and to act as a steward of the organization.
An actors perception of trust in a relationship with
another actor (the trustee) is based on the actors perception of the trustees ability, benevolence, and integrity
(Mayer, Davis, & Schoorman, 1995). When trust has
been established between a hiring family member and a
nepot candidate, the family manager will have confidence in the nepots abilities to meet expected job
requirementsotherwise a trusting relationship could
not be sustained. In addition, when a hiring family member and a nepot have established trust in a relationship,
confidence in the nepots benevolence and integrity
confers an advantage to the nepot that may take other job

applicants a long time to develop since trust must be
earned and verified. The tangible benefits from preestablished trust (i.e., easier delegation of greater responsibility, less monitoring, etc.) may even compensate for
nepots who hold lesser formal job qualifications than
other nonfamily member job applicants. Reciprocal nepotism can thus explain higher benevolence between family compared with nonfamily members in management
(Cruz, Gomez-Mejia, & Becerra, 2010) because family
ties can demand mutual benevolence due to underlying
expectations of indirect reciprocity as a result of generalized exchanges among family members.
In summary, we suggest that reciprocal nepotism
can reflect the heart of what family means to a firm
in a positive way. It can support ongoing family control
across generations by incentivizing and taking advantage of generalized exchange relationships among family members. Reciprocal nepotism thus illustrates how
some families can take advantage of family social capital for their family firms. The development of generalized social exchange relationships among family
members is one example of family social capital
(Arregle et al., 2007; Long & Mathews, 2011; Pearson
et al., 2008). In the following section, we suggest particular family-related conditions which indicate generalized exchange relationships between family members
and, hence, form a foundation for reciprocal nepotism.
Family Conditions That Distinguish

Reciprocal Nepotism From Entitlement
Nepotism
Whereas researchers have considered social exchange
relationships between non-kin (Cosmides & Tooby,
1992) or altruistic behavior toward family members
(Schulze et al., 2003), [r]esearchers have paid considerably less attention to [ . . . ] close relationships, such
as family (Brown & Brown, 2006, p. 4; for a notable
exception, see Long & Mathews, 2011). However,
families are a common context of generalized social
exchanges. Families are typically understood to offer
lifelong group membership; they frequently demand
indirect reciprocity among members because family
members are interdependent in the creation of socioemotional goods such as love, cohesion, and so on
(Bloch, 1973; Jung, 1990; Litwak & Figueira, 1969;
Litwak & Szelenyi, 1969; Stewart, 2003).
Family coalitions are formed in order to produce and

share interdependent resources that would otherwise be
unavailable (Homans, 1961; Long & Mathews, 2011;
Pollak, 1985). We propose that the use of family-related
conditions in hiring family members can distinguish
types of nepotism. Outside of family groups, generalized
social exchanges are rare (Dabos & Rousseau, 2004;
Jung, 1990; Rook, 1987). The human resource management literature suggests that if reciprocity occurs in a
work relationship, it is usually direct in the short run and
in accordance with the needs of the two parties (Litwak
& Szelenyi, 1969; Rook, 1987; Wood & Robertson,
1978). On one hand, generalized social exchanges are
not always required. On the other hand, they develop
rarely and cannot be easily replaced by market transactions because of high transaction costs (Pollak, 1985).
We suggest that hiring family members provides potential to take advantage of generalized exchange relationships that may prove valuable in numerous business
contexts. Yet family ties do not guarantee generalized
social exchanges. The type of social exchange relationship between individuals within a family varies because
of shocks to the family system such as conflict, divorce,
remarriage, or geographic separation of family members
due to economic jolts or death. Nonetheless we expect
that under certain family conditions, family ties can be a
source of unique assets (e.g., family social capital) that
are valuable to organizations. Reciprocal nepotism
enables firms to take advantage of such assets.
Based on the social exchange literature (Blau, 1964;
Cropanzano & Mitchell, 2005; Gouldner, 1960; Uehara,
1990), we propose that the consideration of family conditions in hiring can help explain whether family firms
are likely to take advantage of potential generalized
exchange relationships among family members. We discuss the following family conditions: (a) the level of
family membernepot interdependence in the family,
(b) the extent of family membernepot exchanges in the
family, and (c) cultural norms that support obligations to
family members:
(a) The most common context of generalized social
exchanges is family (Brown & Brown, 2006). Pollak
(1985) outlines that family ties offer the potential of stable, long-term relationships based on implicit rather than
explicit contracts. According to Brown and Brown
(2006), families are formed because family bonds are crucial for achieving goals that require interdependent, risky,
long-term investments. Examples of such long-term
investments are socioemotional factors such as love and
identity or the shared protection and upbringing of children, who will eventually take care of their parents
(Pollak, 1985). Thus, we suggest that the higher priority
nepots and hiring family members give to belonging in a
family, the higher their perceived interdependence within
a family.
Research supports associations of family ties with
interdependence, strong social bonds, the suppression of
self-interest, and long-term investments in personnel
(Brown & Brown, 2006; Neyer & Lang, 2003). Although
the degree of interdependence between family members
varies, family interdependence is an indicator of generalized social exchanges. Such social exchanges are
potentially valuable to organizations and make it less
likely that nepots will disappoint family members who
hired them (Long & Mathews, 2011; Pearson et al.,
2008). We, therefore, suggest that reciprocal nepotism is
a form of nepotism resulting from family member interdependence in hiring that can subsequently support generalized exchange relationships among family members
in a family firm. We derive the following proposition:
Proposition 1a: Reciprocal nepotism resulting
from family member interdependence leads
to generalized social exchange relationships
among family members in family firms.
(b) Meeker (1971) suggested that generalized social
exchanges are achieved only when the exchange relationship between two actors has a history of interaction.
However, a high level of interaction is difficult to
achieve when an unknown person is hired from outside
the family. Nonfamily relationships normally rely on
semipermanent group adherence and relatively few
exchanges over time (Jung, 1990; Litwak & Szelenyi,
1969; Rook, 1987; Stewart, 2003). In contrast, families
present vast opportunities for numerous exchanges
because of potential interactions in the household and in
the shared social family life. Close family members
(e.g., parent and child or siblings) have the most opportunities for a history of interaction and exchanges
because they often share their lives in a household for an
extended period of time (Pollak, 1985). However, if siblings live apart from each other or a parent, they have
fewer opportunities for exchanges. The duration and
inclusion (closeness) of relationships are important predictors for stable, long-term implied contracts which
enhance chances of (generalized) social exchange and
tenure (Jung, 1990; Rousseau, 1989, 1990). When
Jaskiewicz et al.
sharing such a common heritage, the hiring family
member and nepot are also more likely to hold similar
perceptions of the implied contract between them
(Boland & Tenkasi, 1995; Dabos & Rousseau, 2004;
Rousseau, 1989, 1990). Therefore, if nepotism exists in
a situation where there is a history of interaction between
the hiring family member and the nepot, such nepotism
can lead to generalized social exchange relationships
between family members, that is, long-term, trust-based
relationships characterized by indirect reciprocity. We
suggest the following proposition:
Proposition 1b: Reciprocal nepotism resulting from
a history of interaction between family members
leads to generalized social exchange relationships among family members in family firms.
(c) In addition to generalized social exchanges as a
consequence of interdependence and previous
exchanges between family members, obligations of
family members to reciprocate are also related to prevalent cultural norms (Gouldner, 1960; Lvi-Strauss,
1969). Norms related to family morals strongly reinforce reciprocity expectations among family members
because nonreciprocal behavior can be subject to social
and emotional sanctions that are difficult to resist
(Jung, 1990; Rousseau, 1989, 1990; Stewart, 2003).
Family relationships are often understood as lifelong
belonging to and support of the family based on family
morals and lifelong normative expectations of each
other (Stewart, 2003). In cultures with strong family
norms, hiring family members has high potential to
trigger large normative obligations to reciprocate.
Such norms are particularly valuable because they do
not apply to friends or other acquaintances. When
commitment and long-term support are needed, family
(and even more so kin) can be relied on whereas, for
example, friends or neighbors cannot (Litwak &
Szelenyi, 1969; Rook, 1987). Although the prevalence
of family ties exemplifies moral obligations to help
and reciprocate, the strength of this family effect will
vary depending on the specific cultural context. We
derive the following proposition:
Proposition 1c: Reciprocal nepotism resulting
from cultural norms that support obligations
toward family members leads to generalized
social exchange relationships among family
members in family firms.
In summary, hiring decisions in favor of family are

acts of trust (Molm et al., 2007). They hold the potential to take advantage of generalized social exchanges,
norms of indirect reciprocity, and trust among family
members under at least these three conditions: previous
family member interdependence, a history of family
interactions, and established norms that support obligations to family members.
Reciprocal Nepotism and Tacit

Knowledge Management
We propose that by taking advantage of generalized
social exchanges, reciprocal nepotism can enhance
TKM in organizations. In todays knowledge-based
economy, effective TKM is a key component of firm
competitiveness and performance (Coff et al., 2006;
Matusik & Hill, 1998). Tacit knowledge is noncodified
and nonpatentable knowledge. It is accumulated in an
organization through business activities that include the
production and marketing of goods or services.
Compared with codified or formal knowledge, tacit
knowledge is ineffable or inexpressible (DEredita &
Barreto, 2006; Tsoukas, 2003). Therefore, tacit knowledge is difficult to access by outsiders. It is also personal, context-specific and acquired by experience
(DEredita & Barreto, 2006, p. 1824), and a product of
business processes and personnel interactions (Hatch &
Mowery, 1998). From this perspective, the use of tacit
knowledge is limited to people who have been exposed
to it and have experience in its application (Turner &
Makhija, 2006).
Tacit knowledge is frequently related to the social
interactions between employees in a specific work environment (Augier, Shariq, & Vendel, 2001). For example, knowledge of how to stimulate creativity within a
product development team is an illustration of tacit
knowledge. Employees can only learn business-specific
tacit knowledge through close personal exchanges with
managers and colleagues over time. Such exchanges are
difficult, costly, time-consuming, and risky (Kogut &
Zander, 1993; Szulanski, 2000). They represent a crucial commitment by the organizations to use this knowledge as a source of competitive advantage. Importantly,
personal, trust-based and long-term relationships
between individuals are necessary for effective TKM
(DEredita & Barreto, 2006; Levin & Cross, 2004). On
one hand, generalized social exchanges are rare to
develop outside family groups. On the other hand, high
transaction costs make market solutions unlikely to

organize TKM effectively. Norms of indirect reciprocity
underlying generalized social exchanges may be a critical facilitator of TKM because such social exchanges
are based on trust and a shared long-term orientation
(Cabrera-Surez et al., 2001).
Effective TKM requires high motivation and commitment from the source and the recipient of tacit
knowledge (Szulanski, 1996). Given the importance of
tacit knowledge for organizations, generalized
exchanges between family members and the associated
long-term orientation and commitment can facilitate
long-term TKM (Levin & Cross, 2004). In this context,
the source of tacit knowledge must trust the recipient
and consider him or her to be reliable (Szulanski, 1996).
Reciprocal nepotism is based on family conditions that
are indicative of generalized exchanges between family
members; generalized exchange relationships may in
turn benefit TKM. Fears of the source that the recipient
might leak the knowledge, and fears of the recipient that
not all knowledge is marketable are of low relevance in
generalized social exchanges but a potential source of
concern in restricted social exchanges.
Generalized social exchanges also positively affect the
absorptive and retentive capacity of nepots which are
important for effective TKM. Absorptive capacity is the
ability to understand, absorb, and apply new knowledge
(Cohen & Levinthal, 1990). It is a function of prior
knowledge. Because tacit knowledge is implicit and
experienced over time, the number of prior exchanges, a
common socialization, inherent trust, and understanding
will likely enhance absorptive capacitygiving family
members an advantage over nonfamily members. These
factors are also relevant for the retentive capacity of
nepots. Retentive capacity refers to the extent that the TK
recipient will actually continue to use the experienced
knowledge (Szulanski, 1996). The common socialization
within a family and the familys identityoften being
closely tied to the firmincrease the likelihood that
nepots will continue using this knowledge when they
share generalized social exchanges with family members
and deem being part of the family important and desirable. In contrast, restricted social exchange relationships
and direct, transaction-based reciprocity between family
or nonfamily members impede mutual, trust-based, longterm investments in TKM. We derive the following proposition in explaining the link between the individual and
organizational level of the organization:
Proposition 2: Reciprocal nepotism, leading to

generalized exchange, increases the firms
ability to manage tacit knowledge effectively.
The relationships between the constructs outlined in
the propositions made in this article are summarized in
Figure 1. Figure 1 also points out contingency factors
that moderate the impact of nepotism on TKM and competitive firm advantage (i.e., firm size, industry). Next,
we examine subprocesses of TKM.
Tacit knowledge has significant potential to increase a
firms competitive advantage as long as it remains and is
effectively managed within the organization (Ghemawat
& Spence, 1985; Hatch & Dyer, 2004). In particular, tacit
knowledge must remain firm-specific, difficult to imitate, shielded, and embedded to remain a source of competitive firm advantage (Barney, 1991; Hatch & Dyer,
2004; Hitt, Bierman, Shimizu, & Kochhar, 2001).
Consequently, we emphasize that the important components of TKM are (a) the transfer of knowledge among
individuals within an organization, (b) the ability of
employees to interpret this knowledge appropriately so
that it can be continuously and consistently used within
the firm over time, and (c) its long-term protection from
unwanted transfers to other organizations, such as could
happen when key employees move to competing companies and share their tacit knowledge over time. Thus, we
suggest that reciprocal nepotism can offer important
advantages for a firms TKM.
Transfer of Tacit Knowledge

Firms may need to transfer their tacit knowledge to
new employees to grow the firm, or because of retirement, sickness, or crucial employees changing jobs
(Cabrera-Surez et al., 2001). Yet the process of tacit
knowledge transfer is considered particularly problematic because of the stickiness of knowledge and
the challenge of exchanging it with others (Kogut &
Zander, 1993; Szulanski, 1996, 2000). Researchers
agree that tacit knowledge is best exchanged during
socialization that involves rich communication modes
between individuals (Nonaka, 1994; Turner &
Makhija, 2006). Ideal settings for tacit knowledge
transfer are those in which individuals are able to
experience the knowledge over time, gaining deep
insights into its nuances and subtleties (Argote &
Ingram, 2000). Lave and Wenger (1991) emphasize
Jaskiewicz et al.
Reciprocal neposm
includes
Family member
interdependence (P1a)
Extent of previous
interacons between family
members (P1b)
Tacit knowledge
management
+
Cultural norms that

support obligaons towards
family members (P1c)
Transfer (P2a)
Generalized exchange
relaonship between
hiring family member
and nepot (P2)
Ulity (P2b)
Protecon (P2c)
Compeve
firm
advantage
from TK
Entlement neposm
based on family es, primo
geniture, etc.
Conngency
factor (firm size)
Conngency
factor (sector of
acvity)
Figure 1. Types of nepotism, effects on the quality of exchange relationships and tacit knowledge (TK) management
the relevance of situational learning and apprenticeship for knowledge management and exchange. The
proliferation of tacit knowledge within an organization can only be achieved through collective and constructive exchanges between individuals who hold
high levels of mutual trust and share long-term goals
(Dabos & Rousseau, 2004; DEredita & Barreto,
2006; Levin & Cross, 2004; Rousseau, 1989). As we
explained above, this appears most likely in the case
of interdependence, a history of interactions, and cultural norms supporting obligations among family
members. Similarly, Cabrera-Surez et al. (2001) suggest that family successions can be effective for the
transfer of (tacit) knowledge because of family ties
between knowledge source and recipient. Moreover,
Gedajlovic and Carney (2010) explain that family
governance of firms offers advantages in managing
generic nontradable assets (such as tacit knowledge)
that might not be accessible to other firms. With our
distinction of nepotism types, we thus theoretically
derive when family ties can offer advantages for TKM
in organizations.
To accomplish TK transfer effectively, each person
who experiences tacit knowledge should have appropriate incentives and commitment to the firm. In this context, reciprocal nepotism offers interesting insights into
knowledge management since it shows that long-term,
multilateral agreements about investments into family

relationships may supersede market explanations
regarding effective TK transfer. In contrast, new nonfamily hires will usually develop restricted exchange
relationships and are likely to have fewer incentives to
acquire specific tacit knowledgein particular if it is
not marketable (Coff et al., 2006). Managers as well as
other employees might be reluctant to share tacit knowledge with unproven newcomers because of a lack of
trust that this knowledge will be kept within the firm in
the long run. However, in the case of reciprocal nepotism, the family members and/or other colleagues
incentives to share all nuances of tacit knowledge will
be stronger. In firms with family member hiring practices, an antecedent for effective tacit knowledge transfer is thus trust between the hiring family member and
the nepot that is an important characteristic of generalized social exchange relationships. In this case, the
manager would have confidence that the nepot respects
the value of tacit knowledge as a source of potential
differentiation and competitive advantage for the firm.
Therefore, a generalized social exchange relationship
between a manager and a nepot improves the likelihood
that tacit knowledge will be effectively shared and
transferred within the organization over time (Dabos &
Rousseau, 2004; Lee et al., 2003; Levin & Cross, 2004).
In summary, reciprocal nepotism leads to generalized
10
exchange relationships between family members,

which provide incentives for family and nonfamily
employees of the firm to share tacit knowledge and for
a nepot to experience and acquire this tacit knowledge
over time (Hatch & Dyer, 2004).
Proposition 2a: Reciprocal nepotism, leading to
generalized exchange, increases the firms ability to transfer tacit knowledge within the firm.
Utility of Tacit Knowledge

Reciprocal nepotism can also support the common
interpretation of that knowledge. Tacit knowledge can
be interpreted and used differently depending on ones
experiences (Fiol, 1994; Szulanski, 1996). In addition,
it is critical that tacit knowledge is interpreted similarly
between recipient and source so that the knowledge is
used effectively. People who share similar experiences
tend to interpret and apply tacit knowledge in similar
ways (Szulanski, 1996; Turner & Makhija, 2006).
Reciprocal nepotism builds on a history of interaction
and interdependence, and cultural norms that support
obligations toward family members so that an organization can benefit from generalized social exchange relationships among family members. Interdependence and
interaction reflect that family members have shared
relatively similar experiences and an ancestral history
of socialization. In turn, a common interpretation of
tacit knowledge is more likely among family members
when compared with nonfamily members (Berger &
Luckmann, 1967; Collins & Smith, 2006; Gedajlovic &
Carney, 2010; Rousseau, 1989). Accordingly, the utility
of tacit knowledge for an organization may be higher
when nepots interpret knowledge appropriately and use
the knowledge where it is of best use to an organization
(Collins & Smith, 2006). We derive the following
proposition:
Proposition 2b: Reciprocal nepotism, leading to
ability to derive utility from tacit knowledge.
Protection of Tacit Knowledge

A principal challenge of TKM is the limited property
rights associated with this knowledge (Liebeskind,
1996). Firms where tacit knowledge is of high importance to competitive advantage must have protocols in
place to limit the leakage of tacit knowledge. For example, it is critical to minimize the loss of key employees
who might subsequently share their knowledge with
competitors over time. We propose that reciprocal nepotism may be an important mechanism that protects a
firms knowledge-based competitive advantage.
In nonfamily firms, employees and managers may
develop more restricted exchange relationships with
direct reciprocity based on some degree of trust, but
continued self-interest by both parties is likely. For
instance, nonfamily hires may have hidden intentions;
they may plan to gain critical tacit knowledge and then
leave to work for a competitor, resulting in reduced
competitive advantage for the focal firm (Barney,
1991; Coff et al., 2006; Hatch & Dyer, 2004). In cases
where a nonfamily employee is sanctioned for misconduct or poor performance, such managerial action can
only be formal (e.g., warning or termination). However,
the sanctioning of a nepot can include both formal and
informal mechanisms (e.g., family disappointment,
shunning) which result in sanctions with more extensive consequences (Gedajlovic & Carney, 2010;
Pollak, 1985). In fact, it is the close and long-term relationships among family members and the additional
monitoring and sanctioning possibilities of families
that allow producing and sharing interdependent
resources (Pollak, 1985). In line with this point, reciprocal nepotism increases the likelihood of long tenure
and less opportunistic behavior by the nepot (Le
Breton-Miller & Miller, 2006; Mattessich & Hill,
1976). Expectations based on family norms and morality reduce the nepots focus on self-interest (Stewart,
2003). Molm et al. (2007) tested the relationship
between types of reciprocity and solidarity, where solidarity is defined as trust, affective regard, perception
of social unity and feelings of commitment (p. 224).
The authors showed that when generalized (indirect)
reciprocity is prevalent, solidarity will be high, and
when people must work together in a teamas occurs
when sharing and experiencing tacit knowledgethey
favor generalized reciprocity in social exchange relationships. These findings highlight the relevance of
generalized social exchanges for organizational contexts such as the one of TKM.
Consequently, reciprocal nepotism increases chances
to keep tacit knowledge within a firm and to reduce leakage to other organizations. Family-controlled firms
might thus prefer hiring family rather than nonfamily
members to experience abundant firm tacit knowledge.
11
Jaskiewicz et al.
In addition, in the case of reciprocal nepotism, employees might be more willing to share tacit knowledge with
nepots over timeknowing that they are more likely
trustworthy and unlikely to leave the firm. Therefore, we
Proposition 2c: Reciprocal nepotism, leading to
ability to retain and protect tacit knowledge
within the firm.
Nepotism,Tacit Knowledge Management,

and Competitive Firm Advantage
Generalized social exchanges are rare in nonfamily
relationships. They are more likely to occur between
family members, in particular, when interdependence,
numerous exchanges, and cultural obligations to reciprocate to family members are given. Such reciprocal
nepotism offers organizations access to a unique, difficult to imitate, and potentially valuable resource (Long
& Mathews, 2011; Pearson et al., 2008). We have
focused on the context of TKM to show how reciprocal
nepotism could benefit family firms.
Tacit knowledge constitutes a competitive advantage in many firms because it reflects the difficult-tocopy know-how to produce high-quality products or
services. Firms that rely on TK frequently develop a
reputation for producing branded goods that are closely
identified with active family involvement in running
the business (Cabrera-Surez et al., 2001). Although
reciprocal nepotism and the generalized exchange relationships of family members are thus likely to benefit
TKM in family firms, this positive effect will become
smaller in larger firms. It will also vary across sectors
of activity.
In larger firms, family members will represent a
smaller fraction of all employees and families might
therefore have to share their TK with employees with
whom they do not share generalized exchanges.
Research suggests that small- and medium-sized family
firms are more effective at TKM (e.g., Cabrera-Surez
et al., 2001; Chirico, 2008; Chirico & Salvato, 2008).
For instance, Fiegener Brown, Prince, and File (1994,
1996) observe that when compared with nonfamily
firms, family firms use more personal and informal
mechanisms in the development of successors, which
benefits the effectiveness of their TKM. However, in
larger firms it will become more difficult to conduct
TKM among few family members. Firm size is therefore one contingency factor that will moderate the
effect of reciprocal nepotism on TKM.
The benefits that might accrue to family firms as a
result of sharing TK with family members will also be
diminished in firms that that do not rely on TK for competitive firm advantage. For example, many firms rely
on codified knowledge for scalable production processes. Firms that compete based on economies of scale
in automatized production processes will not require
generalized exchange relationships for TKM. It is therefore not surprising that examples where tacit knowledge
is paramount include artistic and craft-based firms such
as jewelry producers, manufacturers of musical instruments, or wine producers. Most of these firms have specialized and tailored production processes. Therefore,
we also need to include the sector of activity as a second
contingency factor. The sector of activity potentially
moderates the effect of TKM on subsequent competitive
firm advantage (see Figure 1). In summary, in contexts
where TKM is important to competitive firm advantage,
reciprocal nepotism can play a crucial role and hence
nepots can be a valuable resource to organizations. We
Proposition 3: Reciprocal nepotism, leading to
generalized exchange, improves competitive
firm advantage by increasing the firms ability
to effectively manage tacit knowledge in favorable industries.
Habbershon and Williams (1999) coined the term
familiness to describe family-based capabilities and
resources that result from relatedness (Sirmon & Hitt,
2003). We suggest that reciprocal nepotism is one example that can lead to familiness. We see that reciprocal
nepotism is one way families can take advantage of generalized exchange relationships among family members
that can be valuable in contexts requiring long-term,
stable, and trust-based relationships for competitive
firm advantagesuch as TKM. Effective TKM mirrors
the transfer, use, and protection of tacit firm knowledge
for competitive advantage. Whereas many firms fail at
TKM (Kogut & Zander, 1993; Szulanski, 2000) and
consequently may lose competitive advantage, reciprocal nepotism is potentially valuable because it can facilitate and support TKM in the long run while being
difficult to imitate or substitute by firms that do not
practice nepotism.
12
However, as we have shown, a negative type of

nepotismentitlement nepotismis also possible.
Therefore, only those firms that select nepots who might
share generalized social exchanges with family members in the firm have the potential to benefit from rare,
valuable, and difficult to imitate resources. Reciprocal
nepotism could consequently reflect the essence of family firm behavior that makes these firms distinct and in
some contexts more successful than nonfamily firms
(Chrisman et al., 2012; Chua et al., 1999). This essence
is to behave in a way that takes advantage of family
social capital for competitive firm advantage. Prior
research shows that family social capital is valuable to
firms (Arregle et al., 2007; Zahra, 2010) and that generalized social exchanges are one example of family social
capital (Long & Mathews, 2011). Our model suggests
that the type of nepotism influences the extent to which
family firms are able to take advantage of family social
capital. On the other hand, the case of entitlement nepotism illustrates the opposite. If family businesses hire
family members without consideration of family interdependence, previous family interactions, and cultural
norms, their hiring practices will not likely support firm
competitiveness; in fact, such entitlement nepotism
might even be harmful.
Discussion
Despite being a common hiring practice, few studies
have examined variations of nepotism or its consequences and so this practice is not well understood
(Vinton, 1998). We propose a model to explain why
some family firms benefit from nepotism, whereas others do not. Specifically, we extend SET into the realm
of the family firm and differentiate types of nepotism
based on their potential to result in generalized social
exchanges between family members. Building on this
logic we unpack nepotism within family business which
has been criticized in scholarly management literature
yet is widely used in businesses worldwidea paradoxical situation. By distinguishing both a potentially
beneficial and problematic type of nepotism, our article
contributes to improving our understanding of the widespread use and consequences of nepotism.
In particular, our model suggests family conditions
that should be considered in selecting family members
so that family firms can take advantage of generalized
social exchange relationships. Our study extends prior
research that described organizational advantages

because of family social capital. We describe the conditions that indicate generalized social exchanges and,
hence, family social capital. More important, we suggest that not all family firms are able to take advantage
of such family social capital. Whereas reciprocal nepotism ensures the accessibility of family social capital to
firms, entitlement nepotism does not. The type of nepotism might therefore mediate the effect of family firm
control on firm competitiveness.
Advantages (and disadvantages) of family members
versus friends, neighbors, or strangers have been analyzed in the sociology and psychology literature over the
past several decades. In contrast to other relationships,
family relationships have been found beneficial for longterm commitments because of their potential for indirect
reciprocity and generalized social exchanges (Dabos &
Rousseau, 2004; Jung, 1990; Litwak & Szelenyi, 1969;
Mattessich & Hill, 1976; Rook, 1987; Rousseau, 1989;
Stewart, 2003; Wood & Robertson, 1978). Despite these
potential advantages, some researchers have given little
attention to the organizational benefits of family relationships and have instead focused on adverse effects
(Bloom & Van Reenen, 2007; Prez-Gonzlez, 2006).
However, the results of recent empirical studies questioned the assumed underperformance of companies
that practice nepotism. Paradoxically, these studies
show that publicly traded family businesses, characterized by family ownership and/or family management
presence on average do not underperform (Miller, Le
Breton-Miller, Lester, & Cannella, 2007) and often outperform other firms (Anderson & Reeb, 2003, 2004).
Yet companies in North America that practice nepotism
are often stigmatized while others implicitly or explicitly prohibit the use of nepotism. One reason may be the
lack of theoretical explanations identifying conditions
that distinguish potentially positive types from negative
types of nepotism.
Our study offers several contributions. First, based on
the sociological and psychological literature, we explain
how family ties hold strong potential for generalized
exchange relationships that offer potential benefits to
particular organizational contexts. In particular, our theoretical model brings the family business literature
together with SET to recognize that family relationships
in organizations vary in their types of exchanges (Bowen
& Ostroff, 2004; Collins & Smith, 2006; Fulmer et al.,
2003; Long & Mathews, 2011). We outline how types of
13
Jaskiewicz et al.
nepotism are related to the consideration of family conditions. In one case, the relationship between a family
member who supervises hiring and a nepotism candidate
reflects interdependence and a history of interaction
within the family while being embedded in a culture that
supports reciprocity to family members. Such reciprocal
nepotism thus builds on the unique potential of family
ties for generalized social exchange and may consequently offer an effective alternative to internal or external nonfamily hiring. The latter are related to more
uncertainty with respect to the type of exchange relationship that may develop. Generalized exchange relationships between nonfamily members are rare and might
also require long periods of time to develop (Bhappu,
2000). Extending the work of Gedajlovic and Carney
(2010), Cabrera-Surez et al. (2001), and Lee et al.
(2003), our model suggests how and when hiring family
members can improve competitive firm advantage. We
propose that by taking advantage of the unique potential
of family ties leading to generalized social exchange,
family firms can engage in effective TKM, allowing
them to outperform competitors. In this context, we suggest that understanding the type of nepotism used in family firms helps explain the essence of families in the
context of their firm involvement.
Second, and related to our first contribution, we distinguish potentially positive (reciprocal) from negative
(entitlement) nepotism. Although research and management practice have been critical of nepotism in general,
we identify different types of nepotism. We note that
SET was originally developed to extend the benefits of
family group membership to a broader setting. Our
model also explains that family relationships can vary in
their type in organizations. The case of entitlement nepotism illustrates that nepotism does not always lead to
generalized exchanges and that family ties can serve to
promote continuous asymmetrical, nonreciprocal, paternalistic altruism and behavior (Lubatkin et al., 2007;
Schulze et al., 2003). For instance, cultural norms such
as primogeniture support discrimination against nonfamily and family members other than the eldest son. We
agree with Lubatkin et al. (2007) and Long and Mathews
(2011) that such families will show low cohesion, suffer
from eroded family bonds, and operate in restricted
exchange systems. In contrast to restricted exchange
relationships, family member interdependence and
interaction indicate generalized social exchanges.
Building on the work of Long and Mathews (2011), we
suggest that family firms can take advantage of generalized social exchanges among family members through
reciprocal nepotism. Reciprocal nepotism is an example
of psychosocial altruism as it takes advantage of and
further strengthens family bonds (Lubatkin et al., 2007).
The existence of generalized social exchanges among
family members, however, does not mean that family
firms necessarily benefit. Without reciprocal nepotism,
such family social capital might be inaccessible to the
family firm.
Third, our model helps connect the individual with
the organizational level of analysis. Although most of
the human resource management literature focuses on a
single level, we suggest that our understanding of nepotism types can be improved by taking a cross-level perspective that includes potential effects of nepotism at the
organizational level. It is at this level that we suggest
reciprocal nepotism will be of particular benefit for
effective TKM. TKM is difficult, costly, and often characterized by failure (Kogut & Zander, 1993; Szulanski,
2000). In short-term, self-interested exchanges between
employees, a lack of trust impedes effective long-term
TKM. Because TKM represents a lengthy process
requiring trust, commitment, and mutual personal
investments, generalized social exchanges are suited to
support it (Levin & Cross, 2004; Turner & Makhija,
2006). Indeed, managing tacit knowledge better than
other firms might explain the competitive advantages
that family firms hold by practicing reciprocal nepotism. Based on these arguments, we also refine the
understanding of clan control that is so important to
TKM (Turner & Makhija, 2006). Turner and Makhija
(2006) assume that clans share common goals, trust, and
a vision, which indicates potential generalized social
exchanges. We propose that reciprocal nepotism leads to
generalized social exchanges that can benefit the dyadic
relationships (Coyle-Shapiro & Shore, 2007) and offer
potential advantages for the hiring organization. In contrast, hiring family members simply based on family
tiessuch as in entitlement nepotismcomes with the
danger of restricted exchange relationships and underlying transaction-based, direct reciprocity. Therefore, we
believe that the type of social exchange relationship
established in firms may help explain the positive as
well as negative effect arising from clans.
Fourth, we contribute to the family business and HR
literature in discussing relevant characteristics of family
and nonfamily members. Although nepotism may lead
14
to public criticism of a firm, the continued existence of

family-managed companies, their importance to the
U.S. and world economy, and their often strong performance (Anderson & Reeb, 2003, 2004; Miller et al.,
2011) suggest that the benefits of (reciprocal) nepotism
may outweigh its costs in certain contexts due to the
unique potential of family members to develop and
share generalized exchange relationships. Our model
explains that the particular advantages of hiring family
members might be reflected by the generalized social
exchange relationships they share with the family members that hire them (rather than being exclusively contained in the nepots formal qualifications for a vacant
position; Lee et al., 2003). Therefore, we suggest that
reciprocal nepotism can add value to organizations in
particular contexts (such as when tacit knowledge is
valuable). In this context, we pointed out that the value
of reciprocal nepotism to organizations will likely be
moderated by the organizations size and sector of activity. Larger firms and those operating in sectors that do
not require generalized exchanges for their competitive
advantage may benefit only to a limited degree from
reciprocal nepotism. Future research could identify
other organizational contexts in which reciprocal nepotism contributes to competitive advantage.
Although it is beyond the scope of this article, our
model may also provide information relevant to nonfamily firms. Hiring family members of employees who
hold relevant tacit knowledge may temporarily improve
the chances of engaging in effective TKM, but it is questionable to what extent the firm owners and hired
employees could develop generalized social exchanges
or realize long-term benefits that are a likely consequence of direct family ties and beneficial family conditions. Future research should address this possibility.
Implications for Research

and Practice
A critical next step is to empirically test our model. We
propose that the two types of nepotism (entitlement and
reciprocal) can be measured by using a continuous scale
that ranges from (a) predetermined hiring from a limited
number of family members without consideration of
previous family conditions (reflecting entitlement nepotism) to (b) a competitive hiring process among family
members based on consideration of family conditions
(reflecting reciprocal nepotism). We suggest that Rooks
(1984) measure of the frequency of interaction and
Huis (1988) eight-item kin-collectivism measure (indicating norms and obligations of kin to reciprocate), can
be used to assess family conditions that favor generalized exchange. In addition, a measure of family member
interdependence could be adapted from Janssen, Van de
Vliert, and Veenstras (1999) four-item measure of team
interdependence. To measure the quality of exchange
relationships among employed family members, Shore
et al.s (2006) 13-item measure regarding economic and
social exchanges could be used to proxy restricted and
generalized exchanges. Alternatively, the type of reciprocity inherent in the types of exchange relationships
could be measured by using Wu et al.s (2006) 16-item
scale for generalized, balanced, and negative reciprocity. Whereas generalized reciprocity reflects indirect
reciprocity, positive (mutual interest in an exchange)
reciprocity and negative reciprocity (interest in own
benefit from an exchange) are examples of direct reciprocity. In testing the model, it will also be important in
a further step to account for TKM. Although tacit
knowledge itself is not measurable, we suggest that
Holste and Fields (2010) four-item scales for sharing
and using tacit knowledge could be used as a proxy.
Future research could also develop a scale for protecting tacit knowledge. Finally, we propose that firm profitability could serve as a proxy to measure competitive
firm advantage in our model.
In addition to empirically testing our model, we suggest that future research could contribute to the human
resources literature by examining how the type of social
exchange relationships between family members contributes to competitive firm advantage. Organizations
that benefit from generalized social exchanges might be
in sectors that are dominated by family businesses. In
contrast, nonfamily firms may dominate in sectors
where generalized social exchange is of less benefit
because hiring individuals with the highest formal qualifications (rather than family ties) might be most advantageous. It might thus be interesting to analyze the
impact of a different order of hiring criteria for organizations that benefit from generalized social exchanges.
For example, nepotism is not favored by traditional hiring processes used in large firms, which initially screen
for formal job qualifications and subsequently attempt
to develop social exchange relationships with new hires.
Future research could compare this hiring process with
reverse prioritiesfirst considering the potential for
generalized social exchanges, and second evaluating
formal credentials. However, the time required to
15
Jaskiewicz et al.
establish trust for a nonfamily hire may be costly in
terms of the limited discretion given to the job incumbent to make decisions until trust is established.
A related research topic with similar implications to
nepotism is the case of favoritism. Favoritism results
from hiring preferences of friends and individuals with a
similar cultural or social background (but without family
ties). Interestingly, it is generally viewed as more acceptable than nepotism. For example, some companies
encourage their employees to ask friends to apply for
open positions. Future research should investigate the
role and consequences of favoritism when compared with
nepotism as a way to better understand the implications of
each for human resource management. From a social
exchange perspective, favoritism is more likely to result
in a situation that lies in between restricted and generalized exchange relationships (Litwak & Szelenyi, 1969).
Finally, research might compare and analyze the
practices of nepotism between countries and cultures to
better understand the role of context. Although concerns
related to nepotism are consistently raised in the comparatively individualistic cultures of the developed
Western countries, most businesses worldwide are family controlled (La Porta, Lopez-de-Silanes, & Shleifer,
1999). In more collectivistic (e.g., Asian) cultures, nepotism is widely accepted and often preferred to other
hiring practices (Bhappu, 2000; Yeung, 2000). Studies
could investigate whether cultures that strongly support
family obligations offer a higher likelihood of reciprocal
nepotism in organizations (see Proposition 1c).
Our research also holds practical implications. In
order to reduce the likelihood of subsequent restricted
social exchanges between family members in firms, hiring families should (a) enlarge the pool of family job
candidates to be considered for a job in the firm in order
to increase the interdependence between the hiring family member and the nepot candidates, (b) avoid repeated
altruism toward family members over time since this
can contribute to their feeling of entitlement which in
turn reduces the necessity of exchange relationships and
interdependence with other family members, (c) live
and communicate within the family norms that favor
longevity, cohesion, and reciprocity toward the family.
Conclusions
Nepotism is much criticized, much practiced, and little
understood. So, is nepotism good or bad? It depends. We
pointed out that types of nepotism can be distinguished
based on the consideration of prevailing family conditions. We described family-related conditions that indicate generalized social exchange relationships between
family members. We argued that reciprocal nepotism
leading to generalized exchanges among family members
improves an organizations competitive advantage by
increasing the potential for effective TKM. Accordingly,
we distinguished potentially beneficial nepotismreciprocal nepotismthat is based on relevant family conditions from potentially harmful, entitlement nepotism that
is not. We suggest that future research is required to test
our model, and we hope that empirical studies can further
investigate family firm hiring processes to better understand the potential for reciprocal nepotism in particular
organizational contexts. It is likely that family member
hiring varies across family firms to the extent that some
firms consciously consider family member interdependence, the extent of previous family interactions, and
cultural norms of the family before hiring while others do
not. Overall we see that hiring practices that take advantage of generalized social exchange relationships can be
beneficial and certainly warrant further study.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest
with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the
research, authorship, and/or publication of this
article.
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Bios
Peter Jaskiewicz is an assistant professor in the Department
of Strategic Management and Organization at the University
of Alberta School of Business. His research focuses on family

businesses, corporate governance, and entrepreneurial
processes.
Klaus Uhlenbruck is a professor of Management and Chair of
the Management and Marketing Department at the University
of Montana. He also is a John and Kathie Connors Faculty
Fellow. His research interests include international diversification, mergers and acquisitions, and entrepreneurial processes.
A recent focus is on midsized and family businesses.
David B. Balkin is a professor of Management at the Leeds
School of Business at the University of Colorado at Boulder
and his PhD is from the University of Minnesota. His research
focuses on the management of knowledge and innovation and
employee reward systems.
Trish Reay is an associate professor in the Department of
Strategic Management and Organization at the University of
Alberta School of Business. She teaches and conducts research
in the areas of organizational and institutional change, organizational learning, and dynamics of family enterprises.

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41Family Business ReviewJaskiewicz et al.

Is Nepotism Good or Bad? Types

Family Business Review

Peter Jaskiewicz1, Klaus Uhlenbruck2,

firm performance. What is interesting is that these

University of Alberta, Edmonton, Alberta, Canada

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Family Business Review XX(X)

while others do not. We know that many family firms

often characterized by failure (Kogut & Zander, 1993;

Social Exchange Relationships

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Nepotism Types Based on Social

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Family Business Review XX(X)

et al., 2012; Chua, Chrisman, & Sharma, 1999). An

negative impacts on the parentchild relationship when it

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confers an advantage to the nepot that may take other job

Family Conditions That Distinguish

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Family Business Review XX(X)

Family coalitions are formed in order to produce and

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In summary, hiring decisions in favor of family are

Reciprocal Nepotism and Tacit

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Family Business Review XX(X)

transaction costs make market solutions unlikely to

Proposition 2: Reciprocal nepotism, leading to

Transfer of Tacit Knowledge

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Cultural norms that

multilateral agreements about investments into family

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Family Business Review XX(X)

exchange relationships between family members,

Utility of Tacit Knowledge

Protection of Tacit Knowledge

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Nepotism,Tacit Knowledge Management,

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Family Business Review XX(X)

However, as we have shown, a negative type of

research that described organizational advantages

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Family Business Review XX(X)

to public criticism of a firm, the continued existence of

Implications for Research

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Family Business Review XX(X)

non-economic goals in small firms. Entrepreneurship

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Hui, C. H. (1988). Measurement of individualism-collectivism. Journal of Research in Personality, 22, 17-36.

Downloaded from fbr.sagepub.com at MARQUETTE UNIV on May 20, 2016

Family Business Review XX(X)

ogy of parental altruism. Journal of Business Research,

Rook, K. S. (1984). The negative side of social interaction:

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