Question

Athletic Elite Inc. invested a great deal of time and money in developing a new athletic shoe. The corporation conducted numerous surveys and marketing studies and consulted with scientists and elite runners. Unfortunately, the week before the corporation released its new shoe, Nike Inc. released its new shoe, which proved to be a great success. Athletic Elite’s stock price has plunged. Would the directors have any liability for their decision?

Using the facts in Question 2, What would be different if the directors’ decision to develop a new athletic shoe was based on a review of various running magazines and websites?

Answer 1

1. No directors are not liable for their decision. In business, it is often hard to predict what competitors will do. So directors are not at fault if they could not predict what Nike would be doing. Still, the risk committee should have factored in the anticipated move of competitors and directed managers to come up with alternative strategies.

2. As facts in Question 2 are not provided here, it's hard to answer this part. Still, if the directors’ decision to develop a new athletic shoe was based on a review of various running magazines and websites, even then predicting Nike's moves would not have been easy. Yet they could have come up with a good product which can give a fight to Nike's shoes.