(FORTUNE Small Business) – I have followed with interest and astonishment the Martha Stewart trial and conviction. Here is a world-famous entrepreneur whose venerated brand has been irrevocably tainted by serious allegations of securities fraud and obstruction of justice. And for what? To secretly save a couple hundred thousand dollars out of an estimated $1 billion net worth? Her friend ImClone founder Sam Waksal has already pleaded guilty and is serving a seven-year prison sentence. Another entrepreneur, John Rigas, who built Adelphia Cable into a powerhouse, is now charged by the SEC with cooking his company's books and using corporate funds to buy luxury condos.

Scandals like those remind me of an old Japanese proverb: "The reputation of 1,000 years may be determined by the conduct of one hour." Of course, none of us know which one specific hour or action will serve as the defining moment in which we earn our life's reputation. And so every step we take should be with all the potential consequences in mind.

Having been associated with professional sports for some 20 years--in roles ranging from Philadelphia 76ers' president to commentator for the NBA on NBC--I have seen enough to know that any hour may be the one that provides the juicy newspaper headlines. And each of my employees has known well the question that follows every choice we make: "Would you be pleased and proud if that action was on the front page of the newspaper tomorrow?"

Just as if we were high-profile athletes, we entrepreneurs have to assume that we're being observed 24/7. Our employees, customers, and often the media are watching our actions and gauging our motivations. Every move we make counts against our reputation. Is she late again? Is he playing by the rules? Did she break another promise? She's all about the money. Did he score that extra stroke on the seventh hole?

There is the belief that if you cheat in golf, you will cheat in business. Not being a golfer, I have a similar belief based on a different diversion: If you cheat on your spouse, then you will cheat on me, as an employee, a vendor, or a partner. I make sure that my staff knows that I hold this puritanical view, and it has been tested only once in my 25 years of business. The result was predictable: The married employee, who was caught having an affair with a patient in one of the sports clinics I once owned, was asked to resign. Nowhere in my company was it written down that cheating on a spouse was a fireable offense, but it's imperative that your managers understand your ethics. If any of them didn't get it back then, the message sure became clear after the firing.

It's not easy to protect yourself from cheating and unethical people. All you can really do when dealing with a new supplier or a prospective employee is to vet him thoroughly and listen to your gut. For key positions in my company, I make sure I do every interview myself. I recently hired a general manager to run the tavern at a pirate museum I'm building in Key West, Fla. (It was a particularly tough hire because a restaurant is largely a cash business, where the temptations run high.) Not only did I get references, but I flew the guy up from Florida to Philadelphia and had him live with me in my home for 48 hours. I watched how he interacted with my family, and I took him out for dinner with my buddies to see what they thought. I also wanted him to know what I was about. We'll see--maybe in a future column--whether I made the right decision.

Without trust, a good reputation cannot be created, a leader cannot be effective, and a company cannot prosper in the long run. However, a reputation built upon that foundation will enable you to say "Trust me" and mean it.