Reputation is something every leader possesses. What he does with it matters to the organization.

Case in point: Jamie Dimon, CEO of JP Morgan Chase. The reason he has so far survived the derivative trading episode that cost his company over $2.5 billion and may cost twice that, is his reputation. He is the last lion standing from the heady pre-2008 financial meltdown days. His reputation for integrity, until now, has been beyond reproach.

That reputation is taking a hit with new reporting by The Wall Street Journal that reveals that Dimon knew all about the derivative trading model but was negligent in supervising it. In fairness it was not his job to supervise the details, but the question arises: Should he have been more engaged? Hindsight is 20/20 and the answer would seem to be yes.

His reputation also is not enhanced by his sense of entitlement. Dimon stood down the shareholders and was allowed to keep his dual job as chairman and CEO. Worse, he was allowed to keep his $23 million bonus from last year. To me, that dings his reputation--but worse it affects our perception of his character.

"Character is like a tree and reputation like a shadow," wrote Abraham Lincoln. "The shadow is what we think of it; the tree is the real thing." Character is what a person is; reputation is how he seems. It is therefore perception that can be interpreted or manipulated in different ways.

That said, a leader needs to think about his reputation but it is ultimately his character that matters more. While we like to think of character as what is inside--the individual's moral compass--for a leader, character is the outward projection of those beliefs. In other words, it is one thing to stand on integrity; it is another to act upon it.

Leaders need to act on character. "The big lesson I learned: Don't get complacent despite a successful track record," Dimon told the Journal. "No one or no unit gets a free pass." One senior JP Morgan Chase executive has lost her job over the derivative trading blunder. Shareholders are suing JP Morgan and the FBI is investigating the company. But for now it looks like Dimon has escaped everything except bad press.

Escaping consequence is a failure of character. I view it as a sign of duplicity; it says the rules apply to everyone but me. One reason that employees fail to look up to those at the top is the double standard they perceive. They know that if they committed a big mistake it would cost them their careers. When the big boss stumbles not only does he keep his job, he also keeps his bonus.

Every mistake does not require retribution. Failures of judgment are human, must be treated as such, and weighed in the context of overall contribution to the welfare of the organization. But when the person at the top is not held accountable, questions arise.

"Men of integrity, by their very existence, rekindle the belief that as a people we can live above the level of moral squalor," wrote John W. Gardner, author, educator, and public servant. "We need that belief; a cynical community is a corrupt community."

So when integrity is trumped by circumstance people lose faith in their leaders.

Cynicism may prevail on Wall Street but it cannot be allowed to permeate Main Street nor any other street where men and women of character do their best to lead themselves and their organizations.