Appointing a CEO is the board's most consequential act. It's not just a fiduciary duty but an act of stewardship that shapes the future. History shows how cursory vetting can turn this solemn task into a boardroom tragedy.

Earlier this week, Nestle sacked its CEO Laurent Freixe after he failed to disclose an affair with a subordinate. More in the public spotlight, Astronomer CEO Andy Byron was forced to resign after being caught embracing a co-worker on 'kiss cam' in a Coldplay concert in July. Erstwhile Kohl's CEO Ashley Buchanan was removed in April four months into his job after news of clandestine dealings favouring a vendor linked to a former romantic partner emerged. Complacency had prevented the board from probing interpersonal undercurrents and latent loyalties that would later metastasise into scandal.

In this context, Sebi's recent relaxation of related-party transaction rules is a governance gamble that India Inc can ill afford. It could be harmful to minority shareholders. This is especially so when dereliction is arguably more endemic in India - given a complex cocktail of dynastic ownership, informal governance norms and opacity in succession planning.

A 2018 study by BAF Consultants noted that 97% of Indian family-run businesses lack formal succession charters or governance frameworks. The result? Boardrooms mutate into battlegrounds at the first hint of a leadership vacuum. Sona Comstar's unravelling is telling. Sunjay Kapur's death sparked a bitter contest between his widow Priya Sachdev and mother for control. With no governance mechanism, the board floundered, hurting continuity and confidence.

Five fallacies plague Indian boards in CEO selection:

Collective memory
Boards must not fail to scour digital footprints if they don't want to relinquish control of the narrative to journalists, whistleblowers and activist shareholders. It's better to dig up any dirt first.

Inflated credentials
Remember the incident of a former NSE official who was elevated to a quasi-CEO, bypassing protocol? His credentials were never scrutinised. The result: a regulatory firestorm that consumed the premier stock exchange and laid bare the fragility of its internal governance.

Ambiguities go unscrutinised
Not all red flags are sinister. Some are just misunderstandings. An otherwise-perfect CEO candidate was red-flagged for being linked to a criminal case after his identity was misused by criminals. Boards risk losing good candidates by discarding context. India's creaky public records systems and erratic law enforcement documentation can be problematic for false positives and negatives.

Myth of good faith
Family business boards get into the habit of equating familiarity with integrity. This false premise blinds such boards and causes them to falter. In countries like India, where goodwill queries are eclipsed by social camaraderie or caste loyalties, this complacency is pernicious.

Hidden deals, open fault lines
Cloaked conflicts of interest, such as layers of opaque holding structures and interlocking directorates, are commonplace in India. Hardly any checks exist on hidden non-competes, ongoing supplier affiliations or undeclared related-party interests. The Chanda Kochhar issue at ICICI Bank is still fresh. The board had neglected to dissect the web of external affiliations.

India Inc's board blunders form an expanding compendium. Recall the co- location scandal at NSE and the subsequent resignation of MD Ravi Narain. Structural infirmities in succession planning were evident. His successor Chitra Ramkrishna's decisions, including consulting a mysterious 'Himalayan yogi', drew regulatory censure.

Indian boards must abandon the myth that CEO succession is just a formality or a ceremonial baton transfer. They must embrace a gold standard on this:

Make external vetting mandatory Hire independent lawyers, risk consultants and executive search firms to eschew the echo chamber of false beliefs.

Exercise digital dive
What stops the board from assessing image risk across social media, litigation history and media archives?

Deconstruct networks
This is needed to unearth concealed conflicts, commercial interests or family ties that might impact objectivity.

Vet credentials
Use third-party firms to double-check educational qualifications and regulatory certifications.

Use scenario planning
Involve stakeholder relations and legal affairs to anticipate and manage any post-appointment turbulence.

CEO selection need not be a leap of faith but an alignment check of character, capability, culture and values. The CEO is the story in motion. Miscast them, and you don't just rewrite the script, you burn the plot.

It isn't just a gap in India Inc, but a governance grenade. As Jon Lenzner observed, 'Don't let your next CEO be your next crisis.' In loosening its grip, Sebi may have just greased the wheels of the next scandal.