Yeah, the "upside" to nepotism is that, if you or your brother or your buddy did a good job raising the kid, you have someone who has had solid training for longer than it's possible for any other candidate to have had, and a better understanding of their character than you can get from interviewing another candidate a few times. Hiring Joe's kid is a no brainer, if you trust Joe, less risk of a really bad hire even if he doesn't turn out to be stellar.

The other downside of nepotism -- besides the risk that Joe did a shit job and won't admit it or maybe can't evaluate his kid objectively -- is that even if the kid is the bee's knees, a great hire, it's not really fair -- there's almost certainly other candidates who are just as good and trustworthy as Joe's kid but they can't compete with either Joe's kid. It doesn't really matter what sort of references or credentials a candidate can show you if you can serve as a reference for the other candidate. You can't really run a meritocracy like that.