Cronyism is like nepotism, except the favor is not toward external friends and relatives. Instead, it’s the internal practice of offering favor, such as a position that one is unqualified for, in exchange for ongoing blind loyalty. And it's a problem in organizations of all types and sizes.

Here’s the thing: Those who lack integrity are the ones more willing to be yes-men. Those who lack skill are the ones more willing to never challenge their boss. Those who have always skated by are the ones more willing to continue to do so. The consequences of cronyism are vast and deep, because the essence is favoritism based on a relationship despite capability or qualification.

When a leader makes it a practice to hire and promote people who generally lack the skill, experience or qualifications for a job with the expectation of blind loyalty, they engage in cronyism. Middle management begin to mirror cronyism when these colleagues grant each other positions, favors and benefits. Ensuing decisions are made based on an internal web of exchanged favors and allegiances, rather than what makes sense for the organization. It is damaging because the lack of consistency means there is no rudder to steer the ship. Without a rudder, chaos ensues and management become firefighters.


The following are harmful organizational results of cronyism:

1. Yes-men and women: Since loyalty is treasured above all else, cronyism teaches employees of all levels, usually in a cascading effect, to say yes to everything the CEO says or does with the goal to be in the CEO's favor, rather than doing what is right for the organization. CEOs who are surrounded by yes men and women are unable to benefit from the diverse perspectives, experiences and knowledge of their subordinates.

2. Opposing teams: In-group members — those who have engaged in the art of cronyism — are given high levels of trust, interaction, support and rewards for their unwavering loyalty. Out-group members — those who want to challenge and grow through competence — receive low levels of trust, recognition and support. This causes stress on both sides until the stress on relationships is so great that there is an inability to work together as one team.

3. Lack of problem solving: Rather than give their supervisor more information, more headaches and more chances to give them more work, it makes better sense to in-group employees to simply communicate ongoing accolades and blind loyalty — and keep quiet about any real problems. The aim is to get praised and rewarded without any of the hard work associated with solving any real issues.

4. Bureaucracy: When the merit-based out-group staff must work twice as hard against those trying to gain favor through the easier act of cronyism, the result is a forced bureaucracy based on politicking and infighting. Instead of a consistency in consideration based on facts, this type of bureaucratic culture is damaging to relationships and comes with a far more demanding workload, and often with unfortunate futile results.

5. Poor performance: Since in-group members are rewarded based on loylty rather than competence, they are taught not to excel and may at best achieve average performance. Moreover, they tend to channel their energy and attention toward aligning themselves with the CEO. This distracts them from completing their proper job duties. Additionally, personal connections are utilized and leveraged to dilute organizational norms and protocol.

6. Flawed decision making: When decisions are made based on the balance between favors and loyalty rather than merit and data, wrong decisions are made. The quality of decision making is reduced when senior managers are "always right" even when they are wrong and usually take it as an affront when contradicted (even correctly) by their juniors.

7. Staff confusion: When cronyism trumps organizational structure, the practice of general rules applied uniformly goes out the window causing confusion. “If it was OK for her but not for me, then what about for him and why? If it was stated that way on Tuesday but was the opposite by Friday, then what day is it OK next week?” Rules cannot change as each day, or as each favor, passes by.

8. Reactive leadership: When there is confusion about policies and norms that are broken down, the environment becomes reactive, rather than proactive. And worse yet, the reactive decision can only come from one place — the top — cause little makes sense. It’s a vicious cycle that is best avoided at all costs.

9. Loss of good talent: Tenured, in-group employees continue to be employed, although they no longer perform their duties effectively. Good talent is blocked and stifled by lack of opportunity. Talented people leaving the organization. The constant leeching of talent inevitably weakens the organization.

10. Lowered employee morale: Morale is a group concept — a composite of all individuals’ job satisfaction. Over time, the morale of the out-group will be eroded by their feelings of alienation, powerlessness and inequity, as favoritism of in-group employees renders the relationship between performance and reward less obvious.

11. Loss of company loyalty: The situation can become so political that individuals and cliques spend much of their time on advancing their own interests at the expense of others and the company. This impedes norms, rules, harmony and trust.

12. Lack of accountability: Because of subordinates’ submissiveness and unquestioned acceptance of unequal distribution of power, key personalities who are in control face little or no threat and an overall lack of accountability.

13. Restricted growth: Stress on conformity and centralized control prevents an organization from learning by limiting initiative and innovation. An organization riddled with cronyism is unlikely to produce the economic results needed for survival.

Now for the good news, here’s what you can do:

Because cronyism stems from the fact that superiors are able to manipulate rewards and punishments, move rewards and punishment away from in-group supervisors. Make evaluation criteria explicit, objective and public. Dedicate efforts to hiring, supporting and retaining competent supervisors. Once aware of cronyism at play, CEOs must bring corrective adjustment, doing so for the betterment of the entire organization.