The problem with only hiring people you have met personally is that you miss out on a whole world of people who would be great to work with but had no chance of ever meeting you or your network. I agree that network recruiting is the safest route, but having diversity in your employees is great. If you only hire through your networks you'll see quickly quickly how you only get one kind of person.

I have seem this happen a lot in smaller companies. It's also the story of how I'm typically the sole woman in the department. I by happenstance happen to seed my professional network from college with a lot of men (because I accidentally picked a college that like 80% men). I'm a unicorn because many men's networks include so few women since in IT they tend to be non-traditional and/or generally excluded from younger men's social groups.

I get tapped via my network all the time. But if the company basically only does referral based hiring me and perhaps one other woman is there for the whole engineering department. It's way more balanced at 20%-30% of the department at companies that don't do this. There is some value in shotgun hiring even if it has a higher fail rate than referral hiring. Different kinds of people can bring fresh perspectives and considerations.