XAT 2018 — Decision Making Question 10
Answer the following question based on the information given below.
Ava is the CEO of Ratan Brothers, a bicycle manufacturing company. The organization is doing well financially, with a steadily increasing share price. Recently, Ava promoted Bhushan, her nephew, to the position of head of procurement after he completed five years in the organization. After the promotion, he was automatically inducted into the quality council headed by Ava. Dev and Sons is a supplier to Ratan Brothers. It supplies “ball bearings”, an important part of any bicycle. After Bhushan took over, he switched to a new supplier citing quality deficiencies in Dev and Sons’ product. Dev and Sons responded by publicly declaring that quality was not compromised. Further, it alleged that its competitor bribed Bhushan to get the contract. Post this public allegation, the share price of Ratan Brothers started falling.
Which of the following is the best option for Ava to immediately stem the falling stock prices?
Answer & solution
- A
Fire Bhushan, blacklist Dev and Sons and inform the press.
- B
Issue a press statement that a committee has been formed to look into the matter.
Issue a press statement that the company's quality standards have increased and that anyone is welcome to scrutinize the relevant documents.
- D
Cancel the remaining order and call for a fresh tender.
- E
Do nothing, as Bhushan, as the head of procurement, has the right to decide on the supplier.
The share price of Ratan Brothers has started falling as the shareholders believe the allegation of Dev and Sons that a bribe was paid by the current supplier to get the contract for ball bearings. The investors would be under the impression that the quality of such ball bearing would not be good. However, as Bhushan has stated that he switched to a new supplier because of deficiencies in Dev and Sons’ product, it will be appropriate for the company to declare that there was no decline in the company's quality standards. Also, the company has to state that the shift in supplier has led to an increase and that anyone is welcome to scrutinize the relevant documents. Thus, the appropriate course of action is [3]. [1], [2] and [4] are counter-productive as they imply a wrongdoing from the part of the company. [5] is also incorrect as doing nothing is not an option when share prices are falling.
Hence, the correct answer is option 3.