Societal Inequality, Corruption and Relation‑Based Inequality in Organizations
We all know how useful relationships are when it comes to finding an internship, a job or simply moving up the career ladder. Many suffer from the situation though and accepting that relationships are more useful than skills for “making a career” has a negative impact on companies. Our research shows as well a strong link between the practice of cronyism and the level of social inequality in the country.
Nepotism, favoritism and cronyism are frowned-on phenomena and yet companies persist in using social relationships to recruit, evaluate and promote people. Of course, business organizations relying on people within their networks benefits in reducing recruitment costs and ensuring that employees fit in well with company culture.
Social ties in a work environment usually emanate from pursuing a common goal and vision and developing similar values and recognizing differing talents which are required to make up a team
However, we show that the downside of such practices is that they perpetuate country-level societal inequality, which spills over into corporate practices with detrimental effects on employee commitment.
Societal Inequality means more relation-based inequality in firms
Doing favors for those close to us is ingrained into human behavior and forms the basis of our daily reciprocal social exchanges, our social identity and social capital. However, the asymmetrical building up of exchange within closed groups can lead to elite systems and inequality. We find that in countries like South Africa high economic & social inequality means more relation-based inequality (RBI) in companies there, whereas less RBI exists in countries such as Germany.
The system here of higher education institutions create an obvious system of favoritism. Some companies prefer to recruit only from certain élite schools
Relation-based inequality means weaker employee commitment
Even though companies might feel that favoring personal connections is a safer bet, the result is entirely detrimental when it comes to employee commitment to the organization.
In spite of a Masters and 3 years of experience I am paid less than a colleague who is less qualified and experienced…her uncle works in the company.
Employees perceiving that despite their hard work and better qualifications they are passed over when it comes to pay, bonuses, promotion, or positive evaluation feel unjustly treated. They will experience less belonging and will look elsewhere as soon as the job market is booming. This effect is even stronger for women than men, who suffer more from relation-based HR practices.
Companies should introduce concrete policies against using personal ties in HR decisions
Our survey of over 700 respondents in the US, China, Russia, Germany and South Africa shows that relation-based HR practices are strongly linked to country level inequality and have negative impacts on employees. To counter these internal effects and to foster responsible businesses and societies, corporations can play a role by introducing formal merit-based HR procedures, particularly in recruitment, and clamping down on relation-based HR practices.
Methodology
Our survey included over 700 respondents in the US, China, Russia, Germany and South Africa and included country-level indicators (income, health, education, corruption).
Applications and beneficiaries
Companies should introduce concrete policies against using personal ties in HR decisions
Our survey in the US, China, Russia, Germany and South Africa shows that relation-based HR practices are strongly linked to country level inequality and have negative impacts on employees. To counter these internal effects and to foster responsible businesses and societies, corporations can play a role by introducing formal merit-based HR procedures, particularly in recruitment, and clamping down on relation-based HR practices.
Reference to the research
Hudson, S., Gonzalez-Gomez, H.V., Claasen C. (2022) Societal inequality, corruption and relation-based inequality in organizations. Journal of Business Ethics, 181, issue 3, pp.789–809
