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Is it ok for banks to hire children of bankers? Sort of, says an academic study.

Study suggests it's morally ok for banks to practice nepotism

In utilitarian terms, nepotism is fine

Is it alright that banks and hedge funds hire the friends and children of people who already work in banks and hedge funds? That Jean-Philippe Jabre, son of Philippe Jabre, just joined CQS? That Jonathan and Alex Blankfein spent some time working for Goldman Sachs? Or that J.P. Morgan likes to hire Chinese Princelings? 

No, according to Lauren Rivera, an associate professor of management at Kellogg School of Management who's written a book railing against 'elite reproduction'. Yes, according to a new academic study into the corruption, or not, of J.P. Morgan's recruitment practices in China.

Frank J. Cavico, a Professor of Business Law and Ethics at the H. Wayne Huizenga School of Business and Entrepreneurship in Florida, argues that in utilitarian terms at least, J.P. Morgan's practice of hiring the sons and daughters of Chinese officials into jobs paying $70k-$100k a year, looks morally acceptable.

Utilitarianism, as articulated by the English philosophers John Stuart Mill and Jeremy Bentham, states that a moral action is one that creates more good than bad, as measured in terms of the 'utility' it generates for the individuals involved.

"It appears that a great deal of “good” will emanate from the bank’s [nepotistic] recruitment practices," says Cavico. Firstly, there will be the pleasure of the well connected Chinese children who get the jobs. Then there will be the pleasure felt by J.P. Morgan as its Chinese business grows (the bank went from 13th to 3rd in China for IBD market share between 2009 and 2013). And then there will be the pleasure of 'stakeholder groups' like consultants who get to work with the bank in the country.

What of the badness? "Of course, the qualified, not well-connected job candidates will feel “pain” by not getting the positions, but they likely will find employment elsewhere," argues Cavico. There's also the fact that J.P. Morgan is being investigated under the 'Foreign Corrupt Practices Act' for buying influence abroad. And there's all the badness and negative publicity surrounding the Princelings furore.

On the whole, however, Cavico thinks that  J.P. Morgan's apparent nepotism in China has done more good than bad and is therefore a morally justifiable thing.

The same cannot be said for the bank's Chinese hiring practices when considered in the context of Kant's categorical imperative. Kant says that individuals must not be treated as means to an end, even to achieve a greater good. He also says that actions are immoral when they would not be be acceptable to a rational individual who doesn't know whether he or she will be on the "receiving end."

Successful job applicants might feel 'demeaned' if they get jobs simply because of family connections, says Cavico, adding that "at $100,000 a position the “Sons and Daughters” may not care." And if a rational person doesn't know whether he/she will be a victim of nepotism, he'll almost certainly think it's nepotism is bad.

Where does this leave J.P. Morgan in particular and nepotistic banks in general? The Wall Street Journal reported in February that J.P. Morgan will likely receive no more than a fine and be required to overhaul its hiring practices as a result of the investigation. This doesn't look too onerous. On balance, maybe banks should be nepotistic - unless you're an adherent of Kant.

AUTHORSarah Butcher Global Editor

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