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Is Nepotism Good or Bad? Types of Nepotism and Implications for Knowledge Management
Peter Jaskiewicz, Klaus Uhlenbruck, David B. Balkin and Trish Reay Family Business Review 2013 26: 121 originally published online 24 January 2013 DOI: 10.1177/0894486512470841 The online version of this article can be found at: http://fbr.sagepub.com/content/26/2/121

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470841
41Family Business ReviewJaskiewicz et al.

FBRXXX10.1177/08944865124708

Article

Is Nepotism Good or Bad? Types of Nepotism and Implications for Knowledge Management
Peter Jaskiewicz1, Klaus Uhlenbruck2, David B. Balkin3, and Trish Reay1

Family Business Review 26(2) 121139 The Author(s) 2013 Reprints and permissions: sagepub.com/journalsPermissions.nav DOI: 10.1177/0894486512470841 fbr.sagepub.com

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 2

University of Alberta, Edmonton, Alberta, Canada The University of Montana, Missoula, MT, USA 3 University of Colorado, Boulder, CO, USA 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

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122 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

Family Business Review 26(2) 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

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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,

123 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

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124 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.

Family Business Review 26(2) 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.

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

Reciprocal Nepotism
Nepotism associated with the family conditions of interdependence, previous interactions, and cultural norms

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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

125 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).

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126 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

Family Business Review 26(2) 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

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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.

127 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

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128 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:

Family Business Review 26(2) 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

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Jaskiewicz et al.

129

Reciprocal neposm includes Family member interdependence (P1a) Extent of previous interacons between family members (P1b) Cultural norms that support obligaons towards family members (P1c) Entlement neposm based on family es, primo geniture, etc. -

Tacit knowledge management + Generalized exchange relaonship between hiring family member and nepot (P2) + Transfer (P2a) Ulity (P2b) Protecon (P2c) Compeve rm advantage from TK

Conngency factor (rm 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

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130 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.

Family Business Review 26(2) 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.

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 generalized exchange, increases the firms 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

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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 derive the following proposition: Proposition 2c: Reciprocal nepotism, leading to generalized exchange, increases the firms ability to retain and protect tacit knowledge within the firm.

131 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 derive the following proposition: 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.

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

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132 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.

Family Business Review 26(2) 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

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

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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

133 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

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134 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.

Family Business Review 26(2) 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

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

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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.

135 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. References
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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

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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.

Author Biographies
Peter Jaskiewicz is an assistant professor in the Department of Strategic Management and Organization at the University

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