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.