Nepotism: An Indirect Form of Bribery?
By: Thomas J. Bussen
Brendan M. Keating
We asked our blog subscribers and the wider community this question: We live in a world of
relationships. And sometimes your friend, or your friend's kid, really is the best person available for the
job. What do you do to protect yourself against charges of nepotism?
Nepotism is the practice of favoring friends or relatives, often by giving them jobs. This article
comes on the heels of a report that Goldman Sachs is under investigation for its international hiring
practices. The Chinese office of Goldman Sachs allegedly “employed the sons and daughters of
prominent foreign officials to win business in China and elsewhere.”1 This led to allegations of Foreign
Corrupt Practices Act violations (see our article series on the FCPA here to learn more). Stated
differently, Goldman Sachs allegedly used nepotism as an indirect form of bribery.
Now I write this from St. Louis, Missouri, a place that, like so many others around the world,
often relies on connections, or who you know. To outsiders this often looks like nepotism, pure and
simple. And sometimes it is. But it is also a reflection of imperfect knowledge. It is virtually impossible
to know whether someone is right for a job simply by reviewing a LinkedIn profile, or even in the course
of an interview. But if you have worked with the candidate’s former boss, or mother or brother for 20
years, you trust them, and they say this person can do the job, well, that might be the best that you can
ask for. After all, the referral is putting his or her name on the line, and so has an incentive to be honest.
But the question comes back to distinguishing nepotism from those legitimate hires that are the
result of trust in a mutual connection. This distinction is important. For the hiring manager, his or her
reputation for honesty may be at issue. And as our article on corruption showed, a failure to follow best
hiring practices can subject firms to allegations of wrongdoing and bribery. As with so many areas of
compliance, the question is not simply whether you have done wrong; it is also whether there is the
perception you have done wrong, and whether a competitor can take advantage of that perception to
your detriment.
Here are a few comments and suggestions we received:
-Ethan S. Burger, a Washington D.C. lawyer, notes: It is impossible to craft a universal
definition of a "relative." English is not a particularly rich language to illustrate family connections and
with the factor of divorce, the difficulty of the task increases.
1
“Goldman Sachs Probed on International Hiring Practices”, May 12, 20014,
http://www.businessspectator.com.au/news/2014/5/12/china/goldman-sachs-probed-international-hiringpractices
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-Solomon Ojo, Head, Branch Support United at Mainstreet Bank Limited, writes: While
nepotism may be viewed as an indirect form of bribery, there are cases where such hires are the best fit
for the job in terms of credentials, experience and exposure. It is not in the best interest of any
organization to turn down a competent individual whose profile matches a vacancy owing to the fact
that it may be perceived as a form of indirect bribery. Hence, transparency, compliance with company
hiring policy, as well as conducting a conflict of interest review are all steps in the right direction to
protect yourself against charges of nepotism or bribery.
Common Response Themes
Transparency
Ensure all parties understand organizational policy and the risks arising from perceived and actual hiring
improprieties. As with so many areas of compliance, educating the workforce about the policy, and the
reason behind the policy, is essential. Fraud Prevention specialist Michael Mazanec notes the
importance of taking off the blinders and accepting personal responsibility. He says, “Acknowledge to
yourself that the hiring process and decision could be subject to controversy”. Subsequently, “[c]onfer
with Corporate HR and Legal early to make them aware of your questions and to become familiar with
the company’s nepotism or conflict of interest policies….”
A classic indication of a misdirected hiring decision is where a connected hire is paid far more than his or
her colleagues for the same work. Luis Gimenez Zapiola, Director of Business Compliance Solutions in
Argentina, suggests that steps be taken to “[e]nsure compensation and benefits are equivalent to similar
positions within the firm”. In the most egregious cases of excess, these connected hires may rarely
show up for work, may be given abnormally large expense accounts, or inexplicably luxurious offices.
This disparate treatment raises serious questions about the real purpose behind the hire, and also is
toxic to employee morale.
Documentation
Remember the old adage: the best defense is a good offense. Don’t just follow the corporate hiring
policy; document and prove that you followed policy. Maintain rigorous documentation outlining the
nature of the position to be filled, and all actions taken during the hiring process.
Mr. Zapiola underscores this important step by noting that job postings themselves should “[c]learly
describe the job functions (skills, education and experience) to add objectivity to the hiring process.”
Further, one should ensure that the descriptions are neither tailored to fit the skills of any one person,
nor so broad that everyone would ostensibly qualify. Accurately, and objectively identifying the job and
position (and then filling the job with a candidate meeting those requirements) allows an organization to
better defend its hiring decision. When the hiring decision is made, consider a narrative form in which
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the business justification for the hire is set out. These small, proactive steps are more valuable than
retroactive explanations, no matter how ingenuous your defense.
Know When To Step Back
In cases where the hire may appear questionable to an outsider, seek affirmation from the
experts within your organization. Depending on your corporate structure, it may be best to entirely
cede responsibility for the hiring decision to an unbiased colleague. Mr. Mazanec states that “[i]f the
friend’s kid really is the best, [an unbiased colleague] should help bring that conclusion out”.
Of course, it may be the case that it’s not just a friend’s kid you’re hiring, but a significant
customer’s son or daughter. As Goldman Sachs shows, this may be a dangerous endeavor. If you are
convinced the decision is objectively correct, ensure that the person making the hiring decision does not
stand to profit or benefit from the connected customer. Furthermore, seek to shield the new hire from
conflicts in his or her every day work. Do not put the new hire on the team that works with the
connected customer, for example.
Get With The Program
A Conflict of Interest reporting form is essential for revealing many of these concerns. This is
particularly the case for large and diversified companies, where different divisions may rarely, if ever,
work together. Mr. Zapiola suggests that a conflict of interest questionnaire be used to “[d]etermine
whether the candidate is a government official, a relative thereof, or otherwise a relation of anyone on
the hiring team”.
There may be a conflict situation with your new hire, but your existing employees also may have
conflicts that arise over time. Consequently many companies annually require a conflict of interest
certification, and also require employees to update their certifications anytime a significant conflict
arises. As Mr. Zapiola notes, “Procedural consistency shows good faith”.
Conclusion
Nepotism is just one of any number of accusations that your company may face in regards to its hiring
decisions. To best protect your organization from the myriad threats that it faces, it needs to have a
solid compliance program, and a Code of Conduct that is responsive to the dilemmas your employees
face in the course of their work. By investing the time and resources into the development of your
Program, as well as training your workforce, you can help foster an ethical and compliant business
culture. Time and again, we see this not only increases worker morale and productivity, but also
mitigates your risk exposure on a variety of fronts.
To receive more valuable tips and articles on ethics and compliance issues, including the FCPA,
government contracting, and more, join our complementary newsletter by clicking here.
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We also invite you to visit our blog at www.ethicsresources.org.
About The Author
Thomas J. Bussen (JD/MBA/Certified in Ethics and Compliance) is the co-founder and
Vice President of IntegTree LLC, and adjunct faculty at Saint Louis University’s John
Cook School of Business.
About Our Guest Contributors
Ethan S. Burger is a lawyer operating out of Washington DC, and focused on
international economic crime, corporate governance and legal ethics.
Michael Mazanec is a Fraud Prevention, Risk Control and Operations Management
Professional in the Saint Louis area.
Luis Gimenez Zapiola is the Director of Business Compliance Solutions - BCS S.A,
Argentina.
Solomon Ojo is Head of the Branch Support Unit at Mainstreet Limited Bank in Nigeria
Special Thanks to our guest contributors for sharing their knowledge and expertise.
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Disclaimer:
This material is confidential and proprietary to IntegTree LLC and may not be reproduced, published or
disclosed to others without the express authorization of IntegTree LLC. IntegTree LLC is not a law firm
and is not engaged in providing legal or other similar professional advice or services. In providing our
services, IntegTree LLC attempts to provide its clients with “effective practices” in light of then-current
laws and/or regulations. IntegTree’s services should not replace advice from your in-house or outside
counsel or their opinions concerning company practices.
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