At some point every organization will face an incident that could unravel into a public ethics scandal or become the grounds for regulatory investigation or prosecution. While organizations strive to prevent such issues, the key to maintaining the integrity of the company is in how the issue is handled, and to some extent, what level of response is generated by internal and external stakeholders.

Internal controls as well systems and processes consistent with the Federal Sentencing Guidelines will help define how to handle the issue. But companies that have spent time and energy nurturing and guarding their corporate reputation will always have an easier time managing an ethics problem. Why? They will usually be given more time and more leeway to respond to the crisis, and they will usually face more forgiving audiences, from employees to customers, to consumers and the public.

Two recent news stories highlight the challenges for companies in dealing with their reputation. Reputation Quotient recently released the results of its annual reputation ranking.

Overall the situation is not very positive. According to The Wall Street Journal, "the overall reputation of American corporations, already weak, slipped further this year. Despite corporate-governance reforms and a growing commitment to ethics and social responsibility, companies haven't redeemed themselves with the public. This year, 71% of respondents rated American businesses' reputation as "not good" or "terrible," compared with 68% in 2004.

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