100% with you, but it’s not always easy to get control of your own recruiting. I’ve also seen HR get upset when their involvement is not what they expected.
So long as you don't discriminate against a protected class, you're usually good to go. Nepotism is bad business, but it isn't illegal.
Investors do care about bad business decisions, so it makes sense for them to require good hiring practice. However, if a sole proprietor -- or a business with all its shareholders -- decides to hire inept cousin Vinny to keep him from idling about the house, that's usually legal. In a family-run business (where there is a paper-thin wall between business and personal finances), it may even make financial sense.
This differs from almost any other jurisdiction in the world.