The aim of the article is to analyse the phenomenon of nepotism, its effects in small and medium enterprises in Poland and Ukraine and their negative impact on social capital. Systematization literary sources and approaches for solving the problem of nepotism indicate that it is quite a common phenomenon in central and east European countries. Nepotism caused a lot of negative impact on organizations. It means, that in the organization, where nepotism is common employees have less motivation, job satisfaction. Their commitment to the organization is lower. They are also less efficient due to the selection of less capable candidates for the job or position. According to literature, on the other hand, nepotism could sometimes have a positive impact on family-owned companies. The article contains a review of the literature on social capital, nepotism and its effects, followed by an analysis of the results of quantitative research aimed at expanding knowledge about the problem of nepotism, determining its scope in Polish and Ukrainian enterprises, as well as its evaluation. The methodological tool of the research was a survey. Questionnaires were distributed to 691 working part-time students of private universities in Poland. The research was conducted from February to May 2019. The paper presents the results of an empirical analysis which showed that both nepotism and closely related cronyism are common phenomena in Poland and Ukraine. It should be pointed out that they are more common in Ukraine. Both phenomena have a negative impact on satisfaction, motivation and work, commitment and trust among employees. One of the important effects of favouring people in the workplace is also reduced the social capital of the company. The results of the research can be useful for managers. Social capital is one of the important elements significant for the development of a company, and nepotism affects it negatively. The conducted research can be used as an aid in creating and reorganizing transparent processes related to the employment of staff and effective personnel management in the organization.