Nepotism in the Marketplace

Each week Rabbi Yoel Domb writes about issues of business ethics related to the Torah portion of the week.

Nepotism-n. favoritism shown in the advancement of relatives, especially by appointing them to offices for reasons other than personal worth.
(Webster’s Dictionary)

The existence of the word nepotism eloquently attests to the prevalence of unqualified individuals being appointed to public positions. Originally the word nepotism was coined to embarrass the church, since the word means “nephew”, and medieval prelates used to show favoritism towards their “nephews” (often bastard sons-Webster’s ibid). However nowadays nepotism has the wider connotation described above, and indeed is widely practiced at all echelons of government and business.

One negative aspect of nepotism is the economic damage that can be caused when officials are chosen to govern systems even though they have neither the knowledge or ability to control them.Consider the recent case of ” The Local Authorities Automation Company (LAAC)”, a public company which furnishes computer services to a large number of municipalities. The head of the company, Dani Eldar, had no background in computers, but this did not deter him from assuming the management and enjoying a salary which is double that of most CEOs of public companies. Eldar’s nephew (real nephew) is none other than Adi Eldar, head of the Center of Local Authorities, which holds a controlling interest in LAAC. LAAC furnished hundreds of millions of shekels worth of services to local authorities, who are in deep dept and have not paid most of their bills. This has seriously compromised the position of LAAC who relied very heavily on the local authorities for their business. In a normal situation LAAC would have sued the offending municipalities or stopped providing services if the bills were not paid. But because of the nepotistic relationship between the heads of these two companies LAAC continued to provide services until its own situation became untenable. By this point the 600-worker company was forced to lay off workers and restructure in order to maintain economic viability. ( Globes, 21/3/01)

It is highly likely that Adi Eldar advocated the appointment of his uncle in order to facilitate the continuation of LAAC’s services even to debt- ridden municipalities. Yet as a result of this, the company suffered heavy corporate losses and many people unjustly lost their livelihood. It is impossible to know for sure, but had an unaffiliated individual led the company this might have been prevented. Thus, the appointment of a close relative with vested interests may have caused fiscal damage and much anguish.

In Parshat Devarim Moshe recollects the advice which he had given the judges of Israel:- “And I commanded your judges at that time, saying: “Listen to both sides and judge righteously between brothers and foes. Do not show favor while standing in justice, give equal attention to small and large cases, do not fear any man, since your judgment emanates from G-d, and all difficult questions must be referred to me (Moshe)”

The concept of not showing favoritism in judgment is repeated in Parshat Shoftim. The Sifrei (Halachic Midrash) explains the reason for this repetition by defining two distinct prohibitions: The latter source refers to the judge, who must show impartiality when rendering his judgment, while the former in our Parsha refers to the one who appoints the judges: “He should not say: ‘this person is brave or handsome, I shall make him a judge, this person is my relative, I shall make him a judge’, and he does not know the laws, and this can lead him to acquit the guilty party and condemn the innocent. In this case the one who appointed him is considered as if he showed favoritism in judgment”

We can see from this Midrash that the concept of unfair justice extends beyond the courtroom. Anyone whose favoritism may have caused a miscarriage of justice is held accountable, even if he himself did not pass judgment. This is because he ought to use his position to appoint appropriate candidates.

It is easy now to see the lesson which can be derived for executive appointment decisions. If the appointee is chosen because of his talents, he can be relied on to serve the company faithfully. If any other considerations were involved in his appointment, it may lead to calamitous consequences for the company. Since a company is made up of individuals as well as stockholders who may suffer from this appointment, it behooves the directors to be scrupulously honest and not to allow any pressures or prejudices to affect their decision when deciding on a candidate. Otherwise they too become party to the company’s demise and to the suffering of innocent people who had trusted the management to fulfill its task.

The obligation to choose impartial and capable leaders stems from the obligation to provide impartial judiciaries. Both are in positions of responsibility which, if abused, can cause innocent people to suffer, even if they did not intentionally harm those people. Both are presumed to be experts in their field who are not prone to being influenced by external presssures in fulfilling their duty. Yet whereas everyone agrees that judges must be uninfluenced by partisan considerations, many are willing to accept nepotism in appointments in the business sector. The fallacy of this view is proved by the Eldar case and by the Sifrei’s interpretation of the prohibition on favoritism which extends beyond the judges themselves. Ultimately, as the Haftara in Devarim emphasizes, G-d himself will appoint the true judges of Israel: “And I will return your judges as before…then you will be called the city of justice, the faithful town.”

This column presents general principles for approaching business ethics topics. For specific guidelines, please refer to a halachic authority.

Rabbi Yoel Domb is a graduate of JCT and a member of the faculty of the JCT Bet Midrash. He was awarded a fellowship from the Center for Business Ethics for the academic year 2000-2001. He is currently researching topics of business ethics in Jewish Law and is preparing a curriculum to facilitate the teaching of these topics in Rabbinical seminaries (Yeshivot).