On the meritocracy of nepotism

A lot of people agree that nepotism is something we should mitigate.

There are many cases where nepotism allows mediocre people with powerful patrons to circumvent the system, climbing the ladder through politics instead of good work. A lot of family owned businesses follow the cliché: The first generation builds the business, the second generation runs it, the third generation kills it.

But nepotism, or patronage, can produce results. I enjoyed reading an article about Nelson, Britain’s weapon against Napoleon, which argues for the utility of nepotism. “What we can learn from the 18th-century Navy is that the best results are often achieved not by meritocracy alone, but by meritocracy combined with a system of patronage.”

A 2019 study of the Navy between 1690-1849, by Joachim Voth and Guo Xu, examined the effect of patronage on performance. It looked at more than 4,000 promotions to see the difference between captains who had been promoted by a relative or patron versus those promoted by someone with no personal connection. These captains had command of a ship, and were essential to naval performance.

Their performance is easy to measure: ships sunk. Surprisingly, the connected officers outperformed the unconnected ones. The nepo-babies really were more likely to sink, burn or capture enemy ships, regardless of the ship they were given command of or their position in the battle line. They were also more likely to win one-to-one encounters.

“In essence, connected officers either lost or won and never experienced a draw; whereas nearly a fourth of all unconnected officers fought indecisive engagements.”

The captains who had been promoted by a personal connection outperformed because they had more “fighting spirit”, they were less likely to give up. A purely meritocratic system couldn’t work that out. There is no exam for tenacity. When the admirals knew the candidates well, they could select for that fighting-spirit and refuse to promote the ones who lacked it.

Navy patronage didn’t hinder meritocracy, it enabled it. The officers who received patronage continued to outperform their peers, even when they no longer had family connections to the most senior officers. This is how patronage worked for Nelson. His uncle and patrons knew he was a hugely talented officer, with exactly the sort of daring attitude the Navy was looking for.

The success of patronage here likely owes a lot to the war. In peacetime, an organization’s mission is less clear, and definitely less visceral across the ranks. Here, nepotism’s negative effects become more pronounced. This is one reason why large companies have more “politics” than startups, incumbents are default alive. Being default dead aligns the direction everyone rows in: survival.

This highlight in the screenshot below also explains the “lineage of excellence”. The edge that some of the top artists, researchers, engineers, warriors, businessmen have comes from a melange of little quirks and nuances. Not all of these make it into books, podcasts, and lectures, and are best gleaned by being in person with them for extended periods of time.

The weird quirks are usually the alpha.

When we are looking for qualities that are hard to measure — things like leadership or passion — patronage is often the best way to find out who has them. This also makes sense why representation at a company matters: in the absence an objective metric, patronage depends a lot on personal connection, which inevitably has subjective empathy mixed in with objective respect. Accenture, for example, where women make up 45 per cent of the board and 33 per cent of the executives, uses sponsorship to support women’s career progression.

This whole preamble can be summarized by “talent knows how to spot talent.”

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Inspired by a conversation with Armaan Dhanda.