I'd love to work in such an environment.

Too many times I've seen people promoted because "their face fit" rather than because of their ability to do the job.

Once that starts, it can damage morale in the rest of the workforce who can easily foresee the "keystone cops" approach to management and the aforementioned management tends to turn into an old-boys club (again non-gender specific).

I've worked in places with both scenarios and found that the meritocratic approach to promotion tends to get a better workforce in general (and I've not always worked in technology).

I've been promoted and passed over in both situations and I preferred to be promoted because I can do the job, rather than because I know the boss.