[Opinion] “Stakeholder Engagement and Corporate Purpose | A Key to IPO Success”

CS Madhura Godbole & CS Hasti Vora – [2023] 156 taxmann.com 713 (Article)

Introduction

An Initial Public Offering (IPO) marks a pivotal moment for a company, representing not just a transition to public ownership but also a declaration of its vision, goals, and commitment to growth. At the core of this milestone lies the meticulous crafting of the prospectus, where the company outlines its purpose and objective to invite public to become part of its growth journey including the essential aspect of general corporate purposes.

Objects of the Issue – Most Significant Factor

One amongst the notable things when a company undertakes IPO is the object of the issue. The “object of the issue” in an IPO holds immense significance. It is a roadmap that captures and shapes how the funds raised will be utilized and what strategic direction the company aims to pursue. While encompassing various elements, one of the recurrent themes is proposing to deploy IPO funds in “working capital” of the Company. This allocation aims to ensure the company’s day-to-day operations are adequately funded, providing stability and flexibility in navigating the business.

Howsoever thought upon, defining these objectives isn’t a unilateral decision made within boardroom walls. It is entirely a collaborative process involving diverse stakeholders, each playing a significant role in shaping the narrative and purpose of the IPO. Stakeholder engagement is key at this juncture. These stakeholders span a spectrum, from internal teams like procurement, marketing, finance, treasury, strategy and legal advisors to external contributors such as legal advisors, auditor, underwriters, investors, and regulatory bodies. Each holds unique perspectives, expertise, and interests that contribute to the holistic formulation of the object to issue.

The contribution by the stakeholders comes in various shapes and forms where:

• Executives and Leadership teams: They are the driving force behind defining the corporate purposes. Their insight into the company’s strategic trajectory, market positioning, and growth opportunities forms the bedrock of these objectives. Executive and leadership teams may deliberate to expand the business operations of the Company into new geographies, new product lines, new ventures. Some advocacy includes: –

1. 1. Harnessing Collective Wisdom: The utilization of IPO proceeds demands a collective effort from diverse teams within the organization. Involving the planning, strategy, treasury, project, and finance teams is pivotal. Their collective insights and strategic perspectives enable a comprehensive assessment of where the funds can be optimally directed.
   2. Strategic Vision and Financial Stewardship: A company’s strategic vision acts as a compass, guiding decisions and resource allocation. Responsible financial stewardship involves judiciously managing resources, optimizing cash flows, and ensuring prudent risk management. This combination allows the company to navigate challenges while staying true to its growth trajectory.
   3. Qualities of a CFO and CS: The Chief Financial Officer (CFO) and Company Secretary (CS) shoulder critical responsibilities in this process. The CFO’s role demands astute financial acumen, strategic foresight, and a strong grasp of risk management. whereas the CS, with their governance expertise, ensures adherence to legal and regulatory frameworks while fostering ethical practices within the organization.
   4. Steadfast Commitment to Objectives: The commitment to aligning actions with stated objectives is a guiding principle. It involves not just setting goals but consistently measuring progress against them. This commitment fosters transparency and trust among investors and stakeholders.
   5. Scenario Planning as the Bedrock: Before crystallizing the objectives of the issue, meticulous scenario planning becomes imperative. Engaging all key teams in a series of “if and if” scenarios fosters a holistic understanding of potential outcomes. This collaborative exercise aids in finalizing the precise objectives that align with the company’s growth trajectory.
   6. Balancing Stakeholder Interests Post-IPO: Once the funds are utilized post-IPO, the delicate task of balancing stakeholder interests against the pre-defined objectives emerges. Continuous communication and transparency are vital. Regular updates to stakeholders, addressing concerns, and aligning actions with the defined objectives foster trust and credibility.

• Finance Teams: Finance teams play a critical role in ensuring the financial feasibility and alignment of these purposes with the company’s overarching financial strategy. They play a critical role in ensuring the financial feasibility and alignment of these purposes with the company’s overarching financial strategy. They may influence the core object of the IPO linking with meeting long term loans, working capital and other interim financial requirements of the Company.
• Bankers: They are another key stakeholder influencing objects of the issue from a lenders’ perspective objectifying deployment of funds into the business specifically linked to the existing working capital needs of the Company, influencing also factors like expanding product lines, extending customer base to international markets, diving into different business lines, giving guarantees to the group entities and so on.
• Legal advisors: They bring their expertise in regulatory compliance, ensuring that the stated purposes comply with legal frameworks and disclosure requirements. They play a vital role in framing boundaries with legal lenses to the needs and requirements of all stakeholders including contractual liabilities on Company for a specific object, applicability and compliances of various Indian and foreign laws getting applicable to the Company by virtue of object to issue, FEMA regulations and likewise.
• Underwriters and Investment Bankers: They contribute by offering market insights, investor sentiment analysis, and structuring the IPO to attract potential investors.
• Investors: Both existing and prospective, are fundamental stakeholders. Their engagement is crucial as their confidence in the stated objectives influences their decision to invest. Clearly articulated, realistic, and compelling objectives often resonate well with investors, fostering trust and support. Investors may be interested more into multiplying the returns on investment may be in form of new ventures, new products, new alliances through IPO and so on.
• Regulatory bodies: Although external, are essential stakeholders involved in ensuring that the stated objectives are in line with market regulations, promoting transparency and safeguarding investors’ interests. Regulatory authorities may interrogate to the object considering the history of Company and its business, promoters, mapping fund requirements with the business needs.
• Involvement of Statutory Auditor and external validation for credibility: Beyond internal deliberations, the involvement of a statutory auditor is a prudent step. Their impartial perspective and expertise in evaluating the proposed strategies help ensure compliance and mitigate risks. Running the envisioned strategies through them offers an added layer of validation and credibility. This external perspective bolsters confidence among stakeholders. Parallelly they also keep an eye on fund utilization from an audit perspective just to ensure comfort in case of certifications.

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