PwC's fate in India

Stories this morning in the press say lawyers are working with investors keen to bring legal action against PwC, the auditor of Satyam, the giant Indian outsourcing business whose chairman this week disclosed an accounting fraud believed to be worth $1bn (£650m).
So far any allegations against the auditor remain unproven, but the very association with such a huge fraud is potentially damaging.
Already some commentators have described the Satyam affair as India’s Enron, and we all know what connotations that brings to the scandal.
In a scandal like this the great concern for the firm is that clients start to bail out for fear of being damaged through association with a tainted auditor. That’s never a very comfortable place to be.
When PwC’s affiliate in Japan, ChuoAoyama, found itself embroiled in a scandal not only did it suffer a two month ban from auditing by the country’s financial watchdog, its clients started to leave in droves. PwC was so concerned it revealed plans to open a new Tokyo firm using the PwC brand.
This was hugely damaging for the business in Japan but the firm, internationally, was unaffected.
Likewise when Grant Thornton International got caught up in Italy’s Parmalat scandal, the chief executive David McDonnell unceremoniously dumped the Italian network member Grant Thornton Spa.
Both actions appeared to stop the reputational contagion spreading to the rest of the firm. Unlike, of course, with Andersen once the Enron explosion took place.
So, the question is: if it really turns sour for PwC in India what effect will it have on the rest of the firm worldwide?
Experience suggests that unless the scandal is in the US, it’s unlikely to affect the global business. Scandals elsewhere, for some reason, just don’t seem to present the same reputational risks – though any firm that made that assumption as part of its own risk assessment would be commercially and morally mad.
Why is that? Clearly the business world looks to the US for its lead. If bad things happen there it must be bad. But along with that perhaps, is an unarticulated assumption that financial scandal is a given in some parts of the world, and therefore not so damaging because that’s what we expected. The arrogance in such an unspoken assumption is just astonishing, but its difficult to see any other explanation.
So here’s a prediction. The Satyam debacle could be horrible for PwC in India. But even if it turns out to be bigger than the $1bn being touted, and the auditor involved in some inappropriate way (though once again there is no way of concluding that at the moment) the effect on PwC worldwide will be negligible.
Perhaps, its worth speculating a little further. 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, even though the numbers say that now.