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.

"'Corporate America continues to demonstrate a tremendous amount of greed, dishonesty, incompetence and a general lack of humanity that I believe is contributing to dissolving values and the work ethic in America,' said Tamara Maimon, a university administrator in Novato, Calif. 'Many young people that I come into contact with don't believe they have to work hard to make a lot of money; they believe they just have to make the right connection or BS or bully their way to the top.'"

Sobering for the companies that are struggling to reemerge from scandal is that the collective memory of the public doesn't forgive quickly. In this year's ranking Tyco and MCI still rank near the bottom of the list of 50 companies surveyed. New leadership and high profile governance programs are not influencing the survey respondents four years after the scandals. If faced with identical issues today, MCI and Tyco may have a harder time managing their reputation than would Johnson & Johnson, which maintained its #1 ranking in the survey.

Carol Hymowitz of The Wall Street Journal recently highlighted the impact of reputation in an article comparing and contrasting Wal-Mart and Starbucks.

While both companies have challenges from employees, unions, suppliers and the local communities, Wal-Mart is usually managing the situation from a reactive and defensive position while Starbucks often gets the benefit of the doubt.

"Wal-Mart, the world's largest public company, is also one of the world's biggest targets. It is being sued for discriminating against women and for forcing employees to work overtime. It has been accused of hastening the decline of U.S. manufacturing by buying products overseas, and blamed for ruining town centers by driving local companies out of business.

"Starbucks, by contrast, has won kudos for helping to revive neighborhoods and towns by creating traffic for surrounding businesses. The company also gets praise for treating its suppliers and employees well, practices it publicizes widely."

Starbucks' reputation for engaging external stakeholders in dialog has served it well in making it easier to resolve issues before they grow into crises and tone down potential controversies.

Reputation management is not a part of Sarbanes-Oxley mandated regulations, nor is it one of the seven elements of the Federal Sentencing Guidelines. But reputation is the often unspoken of foundation that can determine whether a company will survive, or ever recover from, an ethics scandal.

DAVID GEBLER is the President of Working Values, Ltd., a Boston-based business ethics consulting and training development firm. More articles by David Gebler

WORKING VALUES LTD. is a business ethics and training company. Through a variety of products and services, including Web-based compliance and ethics programs, on-site training, video and award-winning ethics games for employees, Working Values aims to align employee behavior with company values. For more information as to how Working Values can narrow your company's Behavior-Standards Gap, visit www.workingvalues.com or contact cgebler@workingvalues.com. For news on ethics in the workplace, visit SmartPros Ethics & Compliance.