Regional catastrophe but international blip for PwC

While there is no evidence of any auditor wrongdoing, PwC’s very association
with a company where such a huge fraud has been committed is potentially hugely
damaging, as clients may start to bail out through fear of being associated in
turn with the scandal.

But experience suggests that unless a scandal is in the US, it’s unlikely to
affect the global business. When PwC’s affiliate in Japan, ChuoAoyama, found
itself embroiled in a scandal it was hugely damaging for the business in Japan
but the firm internationally was unaffected. It was the same when Grant Thornton
International got caught up in Italy’s Parmalat scandal.

It seems that scandals outside the US just don’t carry the same reputational
risks ­ although any firm that made that assumption in its own risk assessment
would be courting commercial as well as ethical suicide.

So why the dual standard? Well, the business world looks to the US for its
lead: if bad things happen there, it must be bad. There is also perhaps an
assumption that corruption is a given in some parts of the world, and therefore
not so damaging because it’s par for the course.

So here’s a prediction. Satyam could be horrible for PwC in India, but the
effect on PwC worldwide will be negligible.

The day a reputational scandal in India or China really does bring down a
global business is the day the world acknowledges that the global balance of
business power really has shifted from the West to the East.

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