Blogging has taught us that customers appreciate transparency. The days of being quite for a couple of days after a PR explosion to get a decent response in order are gone. Customers expect immediate and candid responses to problems.
However, any response has to be measured against the damage it might cause. If your company has put 100,000 bottles of poisoned peanut butter on the shelves because one of your employees had a mental breakdown and purposely added it to a production run, what should you tell people?
Clearly, priority one is getting the peanut butter off the shelves and the product recall notices out, but should you tell the public the details of how the poison ended up there in the first case?
I believe that yes, you should. They will find out and while you're going to look bad for allowing such a person to work for you, you're going to look worse if you deny it or don't mention it and it comes to light later. And it will come to light.
While not poisoned peanut butter, Pub Sub's Bob Wyman wrote a very candid blog entry on the unlikely future of Pub Sub. There's nothing helo back - Wyman lays out the reasons why Pub Sub is likely to go bankrupt and who is to blame.