I have had the unique experience in working for a highly nepotistic company, in which over half of the employees were in some way related to or had been friends of the owners. Now, there is nothing to say that these types of companies or environments are unsuccessful or problematic compared to any other employee model, but the experience I had here can relate very well with the concepts behind Leader-Member Exchange Theory (LMX).
What was special about this institution was that automatically, the employees that were family members became part of the in-group; whom had special relationships and influence with the leadership of the organization, and everyone else was essentially part of the out-group; they had formal roles within the company, for which they were hired (Northouse, 2013). These in-groupers knew more about the company and had more influence over the future and decisions of the company than the out-groupers. This would be normal, but in most other institutions, in-groupers are chosen by levels of skill and competency and usually ‘earn their right’ to hold an ear to influence the business owners. In this environment the family members were often least qualified to pass on opinions, but yet had the strongest voice. This could have been predicted to be harmful for the organization, and indeed it was.
What resulted was that the out-group felt disenfranchised and became disenchanted with the organization. Their valuable opinions would go unasked for and changes would occur that impacted all but benefited few. This led to internal struggles and attrition.
Eventually the owners realized they couldn’t continue to favor those employees who were in their ‘inner circle’ and instead started to expand their in-group, or they would only seek the opinion of the most qualified employees as it related to each issue, so that the same few people were not the only ones consulted. They also started to adopt an ‘open door’ approach and actively encouraged employees to raise issues and strategies with them and allowed them to become more involved with the company at a higher level. This mirrors some of the later research on LMX theory; that strong leadership involved empowerment of followers/members; that this relationship was symbiotic, the leaders would get valuable insight and advice, and members would have a stronger sense of involvement and partnership with the organization. This led to stronger bonding of employees to the company, more ideas and enthusiasm towards work, and a much stronger organization overall.
References
Northouse, P. G. (2013) Leadership: Theory and Practice (6th Ed). Sage Publications.
Thank you. I found your post very informative and it brought back memories of a prior position that I had in a family run company.
Before it started, a wealthy family bought into 3 companies. One brother ran the first one, the other brother ran the second and his son ran the third. The first brother ran his company like a team. Everyone had leadership in certain aspects of the team and he monitored the progress of each department, intervening when necessary to help them become efficient and productive (Northouse, 2013). His company is still doing very well. I worked for the second brother who ran his company from the perspective of the in-group (his family members). As you stated “family members became part of the in-group; whom had special relationships and influence with the leadership” and they were the only ones with a voice in the decisions of the company. The son also ran his company from the perspective of the in-group but because he was without any remaining family members, chose to keep those in the in-group as the people who most thought as he did. If you disagreed, you were left in the out-group from there on. This perpetuated a group of “yes men” whom agreed with every decision he made in order to keep their jobs.
I got out before the company went under. Inevitably, although the brother who was running his company as a team is still profiting, the other two could not learn from his experience and have since, under major poor decisions and financial difficulties, gone under. We can learn from this and the moral is that although money can buy you a company, it can’t make you a good leader. Leadership doesn’t occur in a vacuum. If they would have just empowered their followers, then they too could have gained the insight and advice from followers with a sense of involvement in the company and created a stronger, stable, and wiser organization. Instead, their internal struggles led to their downfall.
References:
Northouse, P. (2013). Leadership: Theory and Practice. (6th ed.). Thousand Oaks: SAGE Publications.