I’m sorry to say that there’s no one right answer. But there is evidence that bosses who are best friends with someone who reports to them (or even elsewhere in their function) will likely face a conflict of interest at some point. Consider this if you’re in a situation where this could happen.
It takes a great deal of emotional intelligence (EQ) to navigate these waters. Performance deficiencies or perceived ethics violations will challenge even those who exhibit extraordinary EQ. Addressing the deficiency or violation can result in a sense of betrayal (on both sides) that one or both of you may never be able to overcome. A deep friendship between boss and subordinate may also lead to the perception, among other employees, of unjust favoritism. So, if this is something you’re grappling with, I recommend you tread lightly and determine, up front, how you both will resolve these types of dilemmas should they occur.