Monday Mornings with Madison

Cronyism: Problem or Perk?

When a company owner or someone in a position of power hires and promotes family members for choice jobs, it is called nepotism.  This type of favoritism is widespread and reluctantly accepted as the perks of those in positions of power.  But there is another form of favoritism that is also widespread:  cronyism.  However, cronyism is highly resented by employees and is often forbidden by employers.  Cronyism is providing friends and associates with jobs, positions of authority and special opportunities without regard to their qualifications and merit.  It really is a lot like nepotism, but for those who aren’t family members, just friends of those in power.  Unlike nepotism which is typically handled out in the open (i.e. father passes the helm to the son), cronyism is often handled covertly, probably because it is such a huge bone of contention.

Indeed, a lot of subterfuge is expended disguising acts of cronyism.  But the subterfuge is pointless.  A 2011 survey by the McDonough School of Business at Georgetown University found that 92% of senior business executives had seen blatant favoritism influence the filling of a job position.   Of those, 84% said they had seen it at their own company.  So no one is being fooled by the attempt to hide the practice.  The question is whether cronyism is really bad for business. If so, why do business people – who are supposedly focused on the company’s success — persist in the practice?

Drawn to People Similar to Me

Cronyism exists, in part, because the key psychological principle of propinquity is at work.  This is when people are attracted to those who are psychologically closest or most similar to them.   It is also commonly referred to as the ‘similar to me’ phenomena.

There are many studies that have proven this tenet.  One experiment in 1971 found that people were more likely to give a dime to a stranger to use a pay phone (back when pay phones were common) if the two people were dressed similarly.   Another study in 1975 found that people were more distressed at seeing a person (seemingly) get an electric shock when they shared the same traits and values with that person.  More recently, in another experiment in 2007, people were more likely to donate to a charity if it highlighted a victim as being of the same nationality as the recipient.

This phenomenon of being drawn to people ‘similar to me’ starts early in life.  Indeed, propinquity is clearly evident as early as high school, when children form cliques with others who are like them, such as the athletic jocks, the studious nerds, or the stylish cool kids.  It is what then contributes to people having friends who very much like them…. people to whom they can relate.  This principle is also at play when managers hire individuals based on a candidate’s “fit” with an organization, but the candidate is actually just very similar to the hiring manager.

It’s Who You Know That Counts

The old adage says that “it’s not what you know, but who you know, that counts.” This reflects that, as social beings, we tend to prefer those in our own clan.  It also drives home the point that – both professionally and personally – the right connections are more important than knowledge or intelligence.

Cronyism is particularly prevalent in small and mid-sized businesses.  Managers will often hire friends, and the children of friends, to fill openings.  Golfing or softball buddies will often give choice assignments and promotions to coworker/teammates.  College fraternity brothers and sorority sisters will often help a member to land an open position.  Cronyism can be found in companies, government positions and even at non-profits.

So what’s wrong with an owner or manager hiring and promoting friends?  It is true that people are hard-wired to loathe unfairness.  Inherently, any kind of favoritism is unfair.  But as it has been said many times, life isn’t fair.   Moreover, cronyism is not illegal, unless it is done in a way that is discriminatory, such as a manager promoting a friend over another employee because of an issue of race, religion, age, gender, etc.  So why not just accept that cronyism is yet another aspect of the unfairness in life?

Simply put, cronyism is bad for business.  Within an organization – whether it is a business, government agency or non-profit – there is a covenant between the employer and employees.  This covenant paints a picture of the future envisioned for that organization. Employees agree to give their effort collectively to create that vision and, in exchange, the employer agrees to support its employees through compensation, benefits, training, and a fair work environment.  There is an unspoken pledge that everyone has a role to play to achieve the vision and succeed.  But when cronyism seeps into that environment, the covenant is corrupted in a number of ways.  This can eat away at the heart and soul of an organization.  Here are five ways that cronyism undermines a business.

1.  Frustrated employees often quit

When a manager hires and promotes friends, other employees will notice and wonder why their seniority and skills didn’t make the cut or, more caustically, why only the boss’ friends were considered or preferred for the spot.  This can and does cause top talent to jump ship and go work someplace where they believe fairness will be honored.  Cronyism increases the turnover rate.

2.  Favored employees can hurt business

When a manager hires a buddy or friend, there’s a very real risk of placing an unqualified or under-qualified person in an important job.  This can seriously undercut cooperation, creativity, ingenuity, efficiency and effectiveness.  Those friends might also get paid higher salaries and given more benefits due to that relationship.  Cronyism hurts the company’s bottom line.

3.  Entitlement encourages laziness

Employees who believe they are ‘untouchable’ due to their relationship with the boss might not perform as well or might take advantage of the situation. They often feel and act as if they deserve more pay and benefits based upon the reasons behind their hiring.  . Such employees tend to be less motivated to earn their benefits and income. More importantly, unmotivated employees de-motivate the rest of the staff, resulting in a snowball effect.  Cronyism fosters laziness and drives down productivity.

4.  Disrespect for company rules hurts employee attitudes.

Employees who are either hired by the boss or are friends with the boss often tend to bend or break company rules and processes.  They don’t show up for training sessions and meetings.   They take extra time off, come in late or leave early.  They do sloppy work.  They provide lax customer service.  These people don’t think the rules apply to them. It is typically part of a general disrespect for company rules and policies because everyone realizes that compensation, promotions and perks aren’t based on effort.  Cronyism erodes staff morale.

5.  Forced hires hurt the employer/manager relationship

When a business owner/boss decides to hire a friend and that person is assigned to work under another manager, everyone in that situation – especially the new hire — is well aware that they really answer to the owner, not the manager.   In practice, the boss is forcing the manager to hire someone he/she wouldn’t normally accept. In addition to the other problems that might arise, this person might undermine the manager’s authority, resulting in a loss of control over the department and workload.  Cronyism undermines effective management.

Companies that want to thrive and grow should embrace and enforce an anti-cronyism policy that ensures a level playing field for all staff.

Quote of the Week

“I believe that cronyism is nothing more than welfare for the rich and powerful, and should be abolished.” Charles Koch


© 2015, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.

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