Does nepotism and favoritism corrupts the workplace? or it's not always bad?

Looking first at nepotism. I worked for a company once where everyone seemed to be related to someone else in the company. They made sure that people did not work on the same project as their family member. However, if staff had to be reduced, the person related to someone else was not the one to go. The negatives of working with family members is that you bring personal stuff to work. They may also be distractions to each other. The only positive is that here is someone that you know and you know what they are capable of.
Now favoritism can actually cause more problems. One of the big issues with favoritism is that it breed resentment. The favorite get the accolades and the interesting projects. And you are limiting your resources. The favorite is given opportunities to grow and bring value to the company. The not favorite does not grow. Their contributions dwindle. The only positives to favoritism is if you are the favorite.

Nepotism and favoritism are viewed so poorly because it is assumed (usually correctly) that these practices place incompetent people into positions that would be better filled by others. If the favorites or relatives do a good job in their position, then nepotism and favoritism are much easier to bear.

Both terms are negative - even if the best candidate is picked, it is not because of their merits but because of who they are or who they know. You can't have a level playing field when either are present and we risk not taking advantage of increased diversity.

Kiron