I have long contended that the two most crucial components of a successful workplace are: 1) creating an atmosphere of trust, respect and fairness; and 2) open, honest communications. In fact, I would argue that these Building Blocks of a Winning Workplace are two sides of the same coin, and a recent survey of 25,000 workers by Towers Perrin seems to support this theory. The study found that almost half of all employees do not believe their leadership communicates effectively with them. Not surprisingly, the survey found that the organizations who received the highest marks for open and honest communication were those who were adept at delivering both good and bad news. These were the companies most likely to win the trust of their people.

“To the extent that organizations are forthcoming about sharing information with employees, even when it’s not great news, that really increases the level of trust,” says Katherine Woodall, a Towers Perrin principal, in a recent Workforce magazine article.

Over the years, we have profiled a number of thriving organizations in our Success Stories and in our Best Bosses recognition program. We do not choose to recognize these companies and leaders simply because they provide lavish benefit packages or create a fun work environment, though those qualities are certainly taken into consideration. We recognize companies because they have sound workplace practices and often because those practices have helped them address critical economic challenges.

The best companies we’ve encountered have recognized the importance of candidly discussing the economic challenges they face with their employees. Perception is often vital in matters of employee relations and trust can be remarkably fragile. Being less than candid about sharing important news with the workforce, whether good or bad, can do irreparable damage to the management/employee relationship. The fact that only 42 percent of the respondents in the Towers Perrin survey felt that their management demonstrated a sincere interest in their well being underscores this point. Companies that keep tough economic challenges close to the vest risk alienating their people at a time when they most need an engaged workforce.

Perhaps the most shocking aspect of scandals at companies such as Enron and WorldCom is not that they deceived their shareholders, but their employees. The fate of workers at these organizations, many of which lost their retirement savings as a result of their employers’ accounting improprieties, remains fresh in the American workforce’s collective conscious. We live in a more cynical time, making regular, candid communications more important than ever.

Woodall contends that most organizations intend to be honest, but are frequently distracted by economic pressures. Often companies keep silent about the challenges they face out of a fear that their key performers will jump ship. While such fears are understandable, we have yet to find much evidence to support this notion. To the contrary, we have found that sharing key financial data has helped engage workers in the problem-solving process. In fact, we have profiled a number of open-book management companies who at some point in their history have faced tough economic challenges and not one of them has suffered a mass exodus of employees. Companies like Alaska Wildland Adventures, IRMCO, Legend Financial and Intranets.com have all benefited from sharing key financials in that each organization has been able to secure buy-in from their employees on tough cost-cutting initiatives. What’s more these firms have been able to engage employees in working out some of the challenges that they have faced.

Keeping the lines of communication open in a difficult economic climate is precisely what buoyed employees despite layoffs at Vis.align LLC – a small information technology services firm. In 2001, the West Chester, Pa.-based company faced serious financial woes and was forced to reduce its 500-person workforce by half. CEO Jennifer Horrocks sends employees key financial information on a monthly basis, so the organization’s struggles were of little surprise. In fact, an employee survey taken after the layoffs revealed that 90 percent of the workforce understood the rationale behind the layoffs. What’s more, the survey revealed that satisfaction remained high with 90 percent of the remaining employees saying they were proud to work for Vis.align.

Similarly, Tauck World Discovery – a family-owned travel company based out of Norwalk, Conn. – faced a difficult economic climate after 9/11. At the time, analysts predicted a 40 percent industry-wide drop-off in business. Shortly after 9/11, Tauck held a companywide meeting to address workers’ anxiety over the company’s financial situation, a move which helped allay fears over the firm’s survival. Not only has the company remained profitable, but a wage freeze instituted after 9/11 was lifted in 2002.

Open and honest communication goes beyond mere financials. Any momentous event in an organization’s lifespan should be addressed candidly and often. For example, when my family was in the midst of selling Fel-Pro, we communicated extensively with our workforce about the process and what the change would mean to them. Doing so was not only the right thing to do, it helped with the transition, allowing the company to hold onto key performers in a time of change.

Of course, no one enjoys being the bearer of bad news and no amount of delicacy can lessen the blow of announcing a layoff, a wage freeze or an increase in health care premiums. It is always better, however, to keep the lines of communication open, so that employees are not blindsided by such moves. Those who do not communicate the financial health of their organizations candidly and often run the risk of stirring the rumor mill where uncertainty and insecurity can increase employees’ anxiety and lower morale. Open, honest communications, tells workers that you respect them enough to deal with them in an above-board manner and that’s always the best policy.