Suppose it is clearly the wrong business choice for your friend's company to acquire your company.

Suppose a friend promoted you over someone else who was vastly more qualified, and worked much harder than you for that promotion.

Etc.

Now suppose you're the one getting screwed over instead of the friend benefiting.

It's not nepotism if friends benefiting is merely a side effect of making the best business (or whatever) decision. But if that decision process is subverted in order to benefit friends, negatively impacting other stakeholders that you have a responsibility to, creating a work environment which is deeply unfair and unmeritocratic, etc., then that is absolutely a problem. This should be pretty obvious.

The problem with that approach though is that it's never clear cut.

Maybe someone is "vastly more qualified" technically but doesn't have any business sense or some other quality that is unknown to the rest of the group. There were many times where I thought that the wrong person was promoted or hired, to find out later that they were actually a good fit. Were they the PERFECT fit? I don't know, but there is value in having history with someone to have a higher confidence they will meet the minimum standard.

There's always someone or some group that is "better" for a job or acquisition or whatever based on some metric.

It's a real problem in my mind for "market information." Generally people go for a product they know, that can fit the bill, over a product they don't know that might be better. Same goes for hiring and personnel etc...

I was merely giving you the clearest possible examples, since you seem to be confused about what possible harm nepotism could cause.

Sure, in some situations, it may be ambiguous who is actually the better pick. For argument's sake, let's assume such choices are ALWAYS ambiguous. If you're consistently picking your friends in those situations, you're nevertheless creating a perception of nepotism (read unfairness) throughout the rest of the company, which will minimally be harmful to morale. So yeah, even if you're not being particularly nepotistic, guarding against the perception of nepotism is still important.

My bigger concern, however, is that it's very easy for someone to rationalize nepotism when they're a beneficiary.

I really don't know enough about the specifics of your situation to know if nepotism is much of a concern, but I definitely don't think your friend's "nepotism is GREAT" stance is worth taking seriously.

What is confusing is that I realized there are cases where Nepotism could be net-comparable or even net-benefit. I had never considered there to be an ethical upside to nepotism before, only a downside.

So that's why I was shocked.

If you are directing other people’s money to your family it is a disservice to those other people. If it is your own money, go nuts. Nepotism vs family business, basically.

Nepotism is generally bad but there is one small perk to it within reason - they know the person they are hiring more already. It is a form of risk aversion in that sense if they already know that a person is adequate - assuming they don't appoint someone regardless of being qualified.

I know of one case of using it productively involves incentives. If you have sensitive data to process that is resistant to automation but fundamentally simple and know a son of a high level partner who is receive considerable support from him with things like paying for college or apartments then that sort of nepotism makes some objective sense even if it is unfair. Betrayal on their part would also be betraying their family and harm their means of support.

I don't think the cutoff is artificial. It comes down to conflicts of interest. If you give your friend a ride to the airport, he benefits, you choose to do it, and that’s the end of it. If you hire your friend preferentially, you’re compromising your duty to your superiors to hire the best candidate.

In your example, your CIO friend has a responsibility to the company to make the best acquisition on the best possible terms. If he’s treating you preferentially because you’re friends, he’s not doing that.

In the societal sense, it is maladaptive - your CIO friend assumes that his friends deliver the best outcome.

That's not what the friend is assuming per the wording.

The friend seems to be plainly stating they don't care if the max outcome is what is occuring or not, insofar as they all at least do better. Helping their friends out is more important than maxing out the quality of the outcome.

Societally, reinforcing and protecting social trust systems may be dramatically more important than maxing out business success outcomes.

I don’t see how that can be true. Tribally, it might be (for a small tribe in a large group). Society wide, it’s definitely bad. I don’t want a bridge built by an uncle politician who “trusts” his nephew engineer’s company. Outcomes should (and do) result in trust, not the nepotism.

Nepotism in a private company is very different to nepotism in government.

The price in the first case is paid by the litigious investors. In the second one, by the unwilling tax payers.

There's another good reason for nepotism - trust - the most valuable commodity in business, and one of the hardest to acquire/assess.