When companies lose trust, they often lose capital. Case in point: Gulf disaster stocks BP, Halliburton, Transocean and Anadarko each sank between 25 and 45 percent during the past four months. The Goldman Sachs-SEC debacle pushed company shares down by 15 percent, and the Dow down by 130 points. Massey stock plunged 42 percent following a deadly string of safety failures. Toyota shares dropped 16 percent following its massive recall. And as of today, none of these companies has fully rebounded, indicating the markets grow slower to forgive.

“The last couple of years have provided plenty of reasons for a building sense of mistrust,” says Motley Fool’s Alyce Lomax. “Goldman Sachs and BP have become the most recent high-profile examples of the many big institutions whose highly paid managers seem to be only out for themselves. ”

Indeed, the lost faith Lomax describes seems to be the principle reason why many more investors demand greater honesty, disclosure, transparency, and professionalism from corporations – and flee stocks that don’t deliver. According to a recent Wall Street Journal article on the topic: “Small investors’ faith in stocks, which surged in the 1990s, has collapsed since the technology-stock debacle and the Enron and WorldCom scandals of 2000-2002…Investors talk of a growing disillusionment with big institutions, including corporations, government, banks and political parties.”

The reasons for today’s trust deficit are clear enough. What apparently isn’t as clear, particularly to the large corporations whose stocks are affected, is what to do differently in order to set things straight.

For the most part, the corporations mentioned above used a classic crisis management approach: deny, deflect, spin, repeat. Rather than open up, they withheld information. They denigrated critics, blamed others and refused to answer pertinent questions or engage in meaningful debate. They hid behind the veneer of canned statements and corporate rhetoric – with the occasional blunder thrown in.

There is “no evidence” that huge plumes of oil are suspended undersea, said BP. The charges against us will “hurt America,” said Goldman. The safety-related allegations against us are “a big lie,” said Massey. The independent research from Stanford University was “staged,” said Toyota.

When it comes to rebuilding lost trust, propaganda makes a bad problem worse. What improves situations is candor. Candor conciliates, clarifies and cuts through hype. Candor works. It’s the greed of the Twenty-first Century.

“Candor in business – or in any kind of organization – is a rare and wondrous thing,” write Suzy and Jack Welch in their book, Winning. “Rare because so few companies have it. Wondrous because when they do, everything just operates faster and better.”

Consider the success of online retailer Zappos, which grew its recently acquired, billion dollar business in under five years by forging open and honest relationships with people. From its standing invitation to the general public to come tour Zappos’ headquarters to its progressive use of blogs, videos and books – Zappos gives people outside the company an uncensored look inside the corporate culture. It even goes to so far as to share best practices with competitors.

“A lot of companies feel they need to guard the secret sauce,” said Zappos marketing executive Aaron Magness in a recent interview. “We’re very open to talking about our business model and plans with everyone. We’ve learned a lot along the way and made mistakes that a lot of other companies don’t need to make.”

Smart companies like Zappos don’t just aim for candor. They leverage it, invest in it, profit from it, and build new communities around it. For instance, Sun Microsystems CEO Jonathan Schwartz blogs freely about what his company and industry does right and wrong, engaging people on all sides of his business. Apparel company Patagonia tracks the social and environmental impact of its products from design through delivery, encouraging customers to buy smarter and contribute to rich discussions. Seventh Generation reveals the full list of ingredients used in its household products, earning customer loyalty and pressuring its industry to follow suit.

Candid companies help restore lost trust and balance to the markets. Rather than telling shareholders or stakeholders what to think, they allow the community to draw its own conclusions, which is precisely why people believe in them. As Seventh Generation’s Jeffrey Hollender said in a recent speech: “You can’t judge yourself to be sustainable or responsible. You can only be judged by others.”

Chistine Arena talks about everyday polutants from Urban ReVision

The trust deficit is clearly a trend on the rise. Back in 2005, a Roper poll showed that 72 percent of respondents felt that corporate wrongdoing was “widespread,” up from 66 percent the year before. A subsequent survey issued by the Customer Care Alliance reported that 90 percent of people were dissatisfied with the way companies treated them, while 64 percent felt “rage” toward corporations. In 2008, a Reputation Institute study revealed that 13 of 24 industries had “weak” reputations based on the perspective of the general public. And in 2009, things have grown worse.

According to pubic relations and research group Edelman, global faith in business has hit a 10-year low, with 62 percent of people worldwide trusting companies less today than they did a year ago, and 77 percent refusing to buy from companies they distrust.

“It has been a catastrophic year for business, well beyond the evident destruction in shareholder value and need for emergency government funding,” says Edelman’s president and CEO Richard Edelman in a recent press release. “Our [2009 Trust Barometer] survey confirms that it’s going to be harder to rebuild our economies because no institution has captured the trust that business has lost.”

Dismal as the current state may seem, it is a crucial one for companies to strategically face. They can start by asking smarter questions. For instance, it’s not so much about which companies and industries are among the world’s most and least respected, but why. What attributes and values do the winners and losers share?

The Reputation Institute says that outstanding leadership, financial performance, innovation, products and governance are the qualities that lead to a strong reputation. Boston College indicates that corporate citizenship plays an important role. Having spent five years researching this issue myself, I’ve found a common thread that might trump them all: purpose.

True High-Purpose Companies – those companies driven by a social or environmental cause to the extent where their financial performance depends on it –are among the most respected companies in the world. Conversely, Low-Purpose Companies – those companies whose social and environmental postures run contrary to shareholder interests – tend to be the some of world’s least respected. In true High-Purpose Companies, purpose directly influences everything from the product line to the innovation cycle, growth strategy, leadership, governance, citizenship  efforts and ultimately, the financial performance of the business. Take Toyota Motor Company, for instance.

Toyota, which was just ranked “The World’s Most Respected Company” by The Reputation Institute, stands for the purpose of “making sustainable mobility a reality.” This purpose is clearly reflected throughout Toyota. Hybrid Synergy Drive, the Prius, zero waste manufacturing facilities and multi-dimensional quality models are just a few examples of how tangible the manifestation of purpose is at Toyota – and how crucial it is to shareholders.

There are dozens of similar examples. GE, Fortune magazine’s “Most Admired” company of 2008, serves the purpose of “providing imaginative solutions to the mounting challenges to our ecosystem.” JetBlue, which JD Power & Associates ranked “The Highest in Customer Satisfaction” three years in a row, aims to: “bring humanity back to air travel.” Patagonia, which Fortune magazine dubbs “The Coolest Company on the Planet,”exists in order to “inspire solutions to the environmental crisis.”

High-Purpose Companies are widely known and revered for their purpose, which is why so many people love them. Such companies might not be perfect, but they are authentic in the sense that their actions and investments match their words. That’s not case in Low-Purpose Companies, which tend to say one thing and do another.

For example, Halliburton says: “[our] every action is guided by our vision to be welcomed as a good corporate neighbor,” but The Wall Street Journal reports that it is “the company with the worst corporate reputation.” Monsanto promises: “integrity is the foundation for everything we do,” yet Amnesty International and theOrganic Consumers Association consider it a “global corporate terrorist.” Allstate Insurance claims that its customers are “in good hands,” while the FBIC counts it as one of the Nation’s “top three worst insurers.” ExxonMobil insists that it is effectively “taking on the world’s toughest energy challenges,” but Harris Interactive rates it as one of the world’s “least trusted.”

The fact is that no ad campaign, no slogan, no celebrity and no promise can compensate for a lack of trust and the feeling that one is being manipulated, fooled or lied to. That’s why authenticity and purpose play such a vital role in establishing corporate reputation.

While not every respected company in the world is a High-Purpose Company, every High-Purpose Company is a respected company. The strategic pursuit of purpose is therefore an effective tool that companies can use to improve their impact on stakeholders, their perceived character and ultimately, their worth.