Want to hire great people? Hire consciously.

January 17, 2013, 12:00 PM UTC

Conscious companies take great care in the initial hiring. It’s much harder today to remedy hiring mistakes than it used to be, so companies should invest a great deal of time and effort to make sure they hire people who are a good fit with the organization—those who believe in the purpose of the business and resonate with its values and culture. For example, The Container Store puts candidates through eight interviews with eight people. The company primarily looks for good judgment and sound integrity; everything else, it believes, is a commodity or can be taught.

At Whole Foods Market, everyone is hired into a particular team on a probationary basis for 30 to 90 days, at the end of which a two-thirds positive vote by the entire team is required before a new hire is granted full team member status. The logic is simple: anyone is capable of fooling a team leader for a while, but it is much more difficult to deceive the entire team. Probationary team members who have poor attitudes or bad work habits or who don’t fit the Whole Foods Market culture are not elected to their team. When this happens, they have to try to find a new team to join (again on a probationary basis) or leave the company.

Once hired, most team members at conscious businesses tend to stay. As Kip Tindell says, “One of the things about The Container Store that makes me proudest is that people join this company and never leave. Our team member turnover is less than 10 percent per year, in an industry that’s over 100 percent.” At Whole Foods Market, our voluntary turnover for full-time team members (who make up over 75 percent of our workforce) is also less than 10 percent per year. Because team members stay for a long time, conscious companies can afford to invest in training them. Few companies take this as far as The Container Store, which recently increased the amount of formal training it gives each employee from 240 to 270 hours. The retail industry average is 16 hours.

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An employment practice based on fear became quite well known over the last two decades, with the financial success that Jack Welch experienced as the longtime CEO of General Electric until 2001. Rooted in its rating system for team members, GE’s policy was to fire the bottom 10 percent of its workforce every year (Enron had a similar policy). The rationale is that people are so scared of being in the bottom 10 percent that they work really hard to make sure they’re not. But even if people are working hard and think they are doing okay, they can’t be sure. People can be so afraid of being in the bottom 10 percent that they begin to see coworkers as rivals rather than as fellow teammates. They try to do what they can to make sure they’re ahead of the next person on the team. Viktor Frankl wrote with shame of the relief he and other inmates felt in the concentration camps when someone else was selected for termination: “better him than me” was the feeling. We think such a policy is very damaging to workplace morale, because it creates a climate of fear and pits people against each other. Fear can be an effective short-term motivator; in a crisis situation, it can elicit extraordinary efforts for a short time. But as an ongoing policy, it’s a disaster. Why create an arbitrary 10 percent turnover? If everyone is doing well, everyone should stay.

Conscious firms count even former team members as supporters. Some, like consulting firm McKinsey and Australian law firm Gilbert & Tobin, have formal alumni programs for former team members. At most firms, laid-off team members have very hostile attitudes toward the company. At conscious businesses, this is usually not the case. For example, many people who had to be let go when The Motley Fool was forced to shrink rejoined the firm later when it started growing again.

Promoting teamwork

It is no coincidence that many conscious businesses organize their people into teams. Working in teams creates familiarity and trust and comes naturally to people. Humans evolved over hundreds of thousands of years in small bands and tribes. It’s deeply fulfilling for people to be part of a team, where their contributions are valued and the team encourages them to be creative and make contributions. A well-designed team structure taps into otherwise dormant sources of synergy, so that the whole becomes greater than the sum of the parts. The team culture of sharing and collaboration is not only fundamentally fulfilling to basic human nature, it is also critical for creating excellence within the workplace. It’s also a lot more fun. Over time, the best teams develop a sense of identity. At Whole Foods Market, for example, teams often adopt imaginative names such as the Rocking Richardson Grocery Team or the Green Produce Monsters.

Most of our teams at Whole Foods have between six and 100 members; larger teams are subdivided into subteams. The leaders of each team are also members of the store leadership team, and store team leaders are members of the regional leadership team. This interconnected team structure continues all the way up to the executive team at the highest level of the company. Teams make their own decisions regarding hiring, the selection of many products, merchandising, and even compensation. Teams have profit responsibilities as well. Most of our incentive programs are team-based, not individual. For example, gain-sharing bonuses are awarded according to team performance.

Teams allow people to feel safe and have a sense of belonging. The creative ideas of individuals bounce around within the team and get improved upon. Especially in the United States, there is a myth of the lone genius coming up with brilliant ideas that change the world. While that occasionally happens, the more common scenario is that an individual comes up with an idea and shares it with other members of his or her team; they become excited and improve upon it. The spirit of collaboration allows the idea to evolve and mature.

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It is natural for people to both collaborate and compete. At Whole Foods, we have found it very effective to have different self-managing teams compete with each other in a friendly way. For example, the produce team in one store strives to increase its productivity and sales compared with other produce teams within the same geographical region, as well as other produce teams throughout the company. It is a matter of great pride to be recognized as the best produce team or the best meat team in a region or for the entire company. This is the opposite of Jack Welch’s model, where team members compete not to be terminated. Here, they compete as part of a team to be rewarded, but no one is necessarily cut from the team.

Our experience at Whole Foods Market shows that trust, cohesion, and performance are optimized in this type of small-team organizational structure. Each person is a vital and important member of the team. The success of the team depends on the invaluable contributions of everyone on the team; no one is invisible, and no one can be a free rider because the team effectively self-polices.

Reprinted by permission of Harvard Business Review Press. Excerpted from Conscious Capitalism: Liberating the Heroic Spirit of Business. Copyright Harvard Business School Publishing Corporation. All rights reserved.