Cronyism currently refers to a person in power giving preference to their friends in hiring, granting contracts, or other political or business dealings. It is often extended beyond 'true' friends, to include people in one's social circles, political party, or social class. It is a pejorative term, and while not (usually) a crime, cronyism is frowned upon.
This sense of the word did not appear until the early 1950s; it was originally coined in 1840 and used to mean 'friendship', or alternatively, 'the ability or desire to make friends'. This mirrors the original meaning of 'crony', which simply meant 'friend'.
Cronyism is closely related to nepotism.