By literal definition, nepotism is "the practice among those with power or influence of favouring relatives or friends, especially by giving them jobs."
So if the person is the one chosing to hire their relative, or influencing it so that their relative receives preferential treatment in the hiring process, then it's nepotism. Now, if I own a business but force my relative to go through the usual hiring process where they're interviewed and selected by someone other than me and I don't influence that process then it's not nepotism, but it does still leave open the door for future nepotism post-hire. All the interaction needs to go through an impartial 'third-party', which can be tricky to manage in practice (if you're in charge of that third-party then you wield influence over them them thus can influence them to still give the relative preferential treatment). Small things like allowing them to arrive late to work without consequences, when you would deliver such consequences on a non-friend or non-family member are still nepotistic afterall.
In small business, some nepotism is inevitable due to the available resources. Nobody is going to object when someone hires a friend or their brother to help run a town bakery afterall, but a local bakery wields rather little influence on a political scale.
But when you hit a certain level of scale in a business (which translates to the weildable power and influence of that business and it's owners/internal power-holders) or start operating at a significant political levels (again, power/influence), there's a matching level of risk management that has to be applied to keep that power in-check that means extra checks and balances to have to be put in place that must be followed regardless of 'intent'. Preventing nepotistic practices becomes necessary regardless of 'good' or 'bad' intentions, to prevent corrupt practices, as well as the formation of pseudo-fiefdoms.