Nepotism is bad because it doesn't reward merit. It rewards ass kissing, and plainly being born. Nepotism isn't just for family, it catches ass kissers too. A Manager or Owner who rewards ass kissing isn't genuine, and doesn't really care about the profitability of his company. He cares more about being validated.

There is a fair amount of nepotism in my company, it hasn't directly affected me, but I see it and it does affect a great number of people I know.