Compliance Glossary

Cronyism

Elected officials and corporate executives may be in charge of dispersing funds or hiring staff members within their organizations. When a decision-maker abuses their power to appoint friends and personal associates to positions of authority, especially while disregarding their qualifications for the role, we observe the corrupt act known as cronyism.

What is Cronyism?

Cronyism is a corrupt practice where an individual in a position of power and influence abuses their authority to dispense favors to their friends and allies. These favors can include, but aren’t limited to:

  • Preferentially awarding jobs to friends and personal associates
  • Preferentially awarding contracts or making vendor agreements with friends and personal associates
  • Preferentially awarding appointments to public office to friends and personal associates

As with price fixing, cronyism at the organizational level may be categorized as one of two types: horizontal or vertical cronyism.

In horizontal cronyism, the exchange of favors takes place between individuals who are on the same level in a hierarchy. Members in a union, or individuals in a friend group or social group can engage in cronyism by using their separate offices to advance the collective interests of the group instead of their employers.

Vertical cronyism takes place within the hierarchies of an organization, where an individual with some authority abuses their power to bestow unearned favors, rewards, or promotions on a subordinate who may be a close friend or personal associate. Vertical cronyism can allow individuals to establish networks of influence within an organization, making it easier to conceal corruption from auditors and evade the accountability efforts of executive leadership.

What is the Difference Between Nepotism and Cronyism?

Nepotism and cronyism are two of the most common types of favoritism occurring within organizations. Although nepotism and cronyism both involve corrupt abuses of power, they are not exactly the same thing. While cronyism involves preferential treatment and abuse of authority to benefit friends and personal associates, nepotism usually refers to the dispensation of special treatment to the actor’s children or immediate family members.

Is Cronyism a Crime?

Cronyism is legal in the United States, but that doesn’t mean that there are no consequences.

When managers promote their personal associates instead of the most qualified candidate, the long-term result for the organization is poor performance and failure to maximize value for shareholders. Cronyism is also understood as a form of discrimination that harms the career prospects of honest, talented, and hard-working employees hoping for advancement in their careers.

In some cases, acts of cronyism that resulted in an unqualified hire have resulted in allegations of age-based, gender-based or racial discrimination, practices that violate the United States Civil Rights Act.

How Can You Prevent Cronyism in an Organization?

Cronyism within an organization can damage morale, reduce employee retention, and negatively impact business results. Organizations can work to eliminate cronyism by:

  • Establishing clear organizational policies against cronyism with strict penalties for violating ethical norms.
  • Enforcing a fair and merit-based selection process for all job roles.
  • Establishing a fully transparent process for post jobs, conducting interviews, and hiring new staff members.
  • Establishing a truly anonymous whistleblower program where employees can report concerns about cronyism within their department.
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