The ethical climate of an organization plays an important role in organizational culture. Organizational ethical climate refers to the moral atmosphere of the work environment and the level of ethics practiced within a company.

Leaders determine organizational climate and establish character and define norms. Character plays an important role in leadership. Leaders of good character have integrity, courage and compassion. They are careful and prudent. Their decisions and actions inspire employees to think and act in a way that enhances the well-being of the organization, its people, and society in general. Ralph Waldo Emerson, the American essayist, poet and philosopher, said: “Our chief want is someone who will inspire us to be what we know we could be.”

The tone set by managers influences how employees respond to ethical challenges and is enhanced by ethical leadership. When leaders are perceived as trustworthy, employee Business Trust increases; leaders are seen as ethical and as honoring a higher level of duties. Employees identify with the organization’s values and the likely outcome is high individual ethics; high organization ethics; and a lack of dissonance. When values coincide, the organization prospers – at least from an ethical point of view.

Trust is the key to establishing an ethical organization environment -- one that guides decisions and actions. Trust in business is the cornerstone of relationships with customers, suppliers, employees, and others who have dealings with an organization. Trust means to be reliable and carry through words with deeds. Trust is gained when an employee follows through ethical intent with ethical action. Trust becomes pervasive only if the organization’s values are followed and supported by top management. By modeling the organization’s values, senior leaders provide a benchmark for all employees.

A good example of building trust in an organization is from Paul O’Neill, former CEO at Alcoa Inc., the world’s third-largest producer of aluminum. O’Neill created a reputation for trust among his employees by setting strict ethical standards and carrying through with them.

In an interview with PBS Newshour on July 9, 2002, O’Neill was asked by reporter Jim Lehrer why Alcoa was able to avoid the accounting scandals that infected so many companies in the late 1990s and early 2000s. He responded with the following statement: “When I went there [to Alcoa], I called the chief financial officer and the controller and I said to them, ‘I don’t want to ever be accused of or guilty of managing earnings,’ that is to say making earnings that really aren’t as a consequence of operations.”

O’Neill went on to express in the interview his dismay at the number of cases where employees of a company were told that these are the company’s values, and then senior management totally ignored those same values.

Transparency produces trust. Who can trust a company or person who doesn’t disclose information, who keeps everything close to the vest, who doesn’t share anything?

Transparency is a virtue that lies between two extremes: one of secrecy and the other, disclosing everything even if stakeholders do not have a right to know.

Secrecy destroys trust because the stakeholders no longer expect the business to do what it promises to do. Excessive disclosure may sound good, that is, what’s wrong with full disclosure? However, stakeholders do not have a right to know everything. They don’t need to know, nor do they have the right to know, the salaries of each employee. Perhaps the CEO’s salary should be known, at least to the board of directors and stockholders…but not by other stakeholders.

As people become more transparent with one another, their relationships deepen. And who is responsible for leading that move towards transparency? It’s the leadership of the business. Transparency must start at the top.

In order for a business to be transparent, its people need to be transparent. A culture of transparency takes shape when leaders intentionally manifest their own personal transparency, and encourage it in the attitudes and behaviors of their team members. In other words, transparency starts with people. When an organization’s people are transparent, then the organization is ready to follow.

Transparency is one of those subtle things that can make a dramatic impact on a business. Yes, it will impact your bottom line. But that’s not the whole point. The point is that it helps everyone do business better–you, your clients, your team member.

This expectation for transparency has extended beyond personal interactions and is now a reality in business. Across all industries, transparency has never been more important to a successful business model. Withholding or cleverly reshaping information is no longer a viable option for this new era of consumers who are savvier than any generation before them and for whom skepticism seems to be a default setting. In order to build brand loyalty, companies need to first build trust.