If ERM fails to address reputational risk, insurance may offer a backstop. Companies have long been able to buy coverage for specific reputation-damaging events such as product recalls, directors' and officers' liability, or what is known as "three-d" insurance, that is, the death, disgrace, or disability of a corporate spokesperson.

But interest in insurance that covers a corporation's good name against a broader array of threats is on the rise. One broker, DeWitt Stern, has begun marketing a policy that would cover U.S. companies for up to $50 million in public-relations and media costs stemming from an event "that does damage to your brand and interrupts your normal business cycle," says LeConte Moore, a managing director at the firm.

Insured or not, a company that suffers a reputational hit can mitigate the damage by taking prompt action. Toyota has been battered in the press as much, and possibly more, for the apparent tardiness and ineffectiveness of its response as for the actual mechanical problem(s).

"That's where so many companies fall down," Fearon says. "They won't admit to the mistake in the first place. And by the time they do, there's been huge damage to their reputations."

But reputations aren't necessarily fragile. Toyota posted a large sales gain in March (admittedly helped by incentives) even as the investigations that may further sully its image continued.

David M. Katz is New York bureau chief at CFO.

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