When that happens the firm concerned can almost guarantee a major loss of business, but no one is quite clear on how long it takes for a reputation to be restored.
It can be a long haul. Putnam Investments, one of the big American fund managers that was implicated in a mutual fund scandal by the crusading US lawyer Eliot Spitzer, is still losing money and clients a full three years later. Its latest figures showed that in the previous 12 months, the assets managed by the group shrunk by $21bn.
This means that overall since the storm broke, Putnam has lost $84bn, which is pretty well a third of all the money it managed. It is not surprising that its CEO talked a month or two back of Putnam being a 'great brand name that has been wounded'.
But there is no corporate disaster which cannot be made worse by inept management. This week Amvescap made Putnam's problems appear trivial. It too was caught up in the Spitzer probe and has suffered mass client defections. These in turn caused poor performance when shares had to be sold prematurely to meet redemptions, leading to more defections. Indeed it is only in the past few months that the bleeding has stopped.
The disaster was self-inflicted and management would have done well to show some humility. Instead, the architect of Amvescap, Charles Brady, is leaving, having turned 70, with a bonus of $9m. The justification is that he has led the company 'through a difficult period', fending off a bid approach and finding a successor.
But that is a boss's job and ignores the fact that it was on Brady's watch that the company got in the mess in the first place.The proposed payment has caused outrage, and rightly so. How can financial firms expect to win public trust when their management display such manifest greed?