It's even more fun in public institutions, e.g. universities, where a higher amount of perfunctory humouring of external candidates is required in order to create a somewhat more convincing appearance of an equitable search.
In that situation, why wouldn't you hire and promote your friends? All of the incentives are aligned for doing just that.
In my org, managers aren't really friends, but they do have trust. A strong recommendation is impossible to overturn.
Furthermore, do you want your colleagues to be motivated by loyalty or by competition?
ie, there's an alumni who now works at a top 5 lab in the field and is now looking for an opportunity to move back to his hometown (for whatever reasons). Job description was obviously written with someone within the institution in mind, but then this person shows up.
So, what did they do? Close the search without hiring anyone, then open a new search with the same job description, adding another skill that only the internal applicant has (I think it was fluency in Italian).
The moral of the story, if there is one, is to never underestimate the ability of people to get a desired result by exploiting the system in an unforeseen way (i.e. hacking). :)
Good to know what was really going with that now.
(For instance that person might have done a lot of work to get a grant, or convince higher ups to make money available.)