The reason for selecting option (2) as the correct choice to change the sentence into direct speech is that it accurately conveys the reported speech as spoken directly by the Management to the Principal. The original reported speech, "The Management suggested to the Principal that they should wait and watch," is transformed into direct speech, maintaining the meaning and structure by stating, "The Management said to the Principal, 'Let us wait and watch.'" This phrasing is a direct representation of the suggestion made by the Management to the Principal.