Who doesn't love a good recommendation? When I get a new one on LinkedIn, I am giddy and read it over and over again, just flattered that someone would say such kind things about me. So, how could this possibly hurt?
As an employer, a recommendation of a current employee could come back to haunt us. According to writer Patrick Smith, The National Law Journal warns about the dangers of using LinkedIn to provide recommendations to current employees. The concern is that a terminated employee may use favorable recommendations on LinkedIn as evidence that the employer's stated reason for termination (such as poor performance) is merely a pretext for discrimination, retaliation, or harassment. Any communications concerning employee performance, regardless of the media, are potential evidence in a lawsuit.
So, make it your company policy (and include it in your social media policy) that executive management, managers, and supervisors are not authorized to provide recommendations to current employees.
It is, however, okay (and encouraged) to give and receive recommendations to/from clients, co-workers, fellow professionals, vendors, consultants, and service providers. In my opinion, good quality customer service is a dying art, so I like to shout it from the rooftops when I find a true artist. Recommendations help us help each other weed out the good from the bad.