[saint_fiasco]

Yes there is, especially when qualifications are subjective or hard to measure.

Being friends with someone makes you more likely to look past their flaws, give them the benefit of the doubt. If you don't do the same for non-friends, you will miss out on some qualified people.

There is also a negative effect in morale when people even suspect nepotism, rightly or wrongly.

[jklein11]

I somewhat disagree with the idea that being friends with someone makes you more likely to look past their flaws. If anything, you are more aware of your friends flaws, and can plan accordingly. Hiring the wrong person for the job is obviously not productive, but not hiring the right person because you know them too well seems down right foolish.