Is it possible to be too good to your employees, customers, and suppliers? When Wall Street analysts pose that question to Jim Sinegal, CEO of Costco (Nasdaq: COST), the backhanded subtext is obvious: "All of this lavish treatment of your workers, shoppers and suppliers is costing us shareholders money!"

Quite the contrary, Sinegal told us during a visit to Fool HQ last week: "This is a people business. And we pay an awful lot of attention to people because it is such an important thing." Subtext: Costco shareholders -- make that long-term shareholders-- make money precisely because of the company's generous policies.

We know it's no fluke that shares of Costco have outperformed competitors like Wal-Mart (NYSE: WMT), BJ's Wholesale Club (NYSE: BJ), and Target (NYSE: TGT). The company's unwavering focus on its primary constituents and its ability to balance their needs while still making a profit is one of the reasons we named Sinegal the Most Foolish CEOback in 2006.

Costco shareholders are in good company
Sinegal and partner Jeff Brotman founded the company in 1983, raising $7.5 million to open three stores. Today, Costco's 560 locations around the world employ 142,000 workers and welcome 55 million members.

Under Sinegal's hands-on leadership -- the guy answers his own phone and spends more than 200 days a year visiting stores -- Costco has earned the respect, admiration, and investment dollars of great thinkers and investors. Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) owns 1.2% of the company's stock, and Warren Buffett's right-hand man, Charlie Munger, has sat on Costco's board of directors since 1997.

Built to last
Sinegal's focus on membership -- from disclosure to shareholders to aggressive low pricing (sometimes at the expense of margins) to having the highest employee retention rate in the industry -- doesn't always meet Wall Street's wishes for short-term profits. But long-term shareholders shouldn't let monthly sales results solely drive their investing decisions. In his words, "We want to be here 50 years from now. We think all of the people who are stakeholders in our company deserve that."

Among the company's core values are:

Don't expect that list to change. "We think it is possible to be profitable and to thrive in the short term without paying attention to those four elements of your business," he says. "But we don't think you can do it long term ... you are going to trip up and you are going to fail."

Sinegal in his own words
Following are edited highlights from our interview with Sinegal. You can listen to the entire audio interview right herevia the direct download, or watch video highlights through the links at the end of this article.

The secret to Costco's 87% member retention rate
"Customers are not going to keep coming back if you are boring. ... We try to make it an exciting place. We try to bring in and create this treasure hunt-type of atmosphere that people comment on all the time. Even the letters of complaint we get start off with "I love Costco. You have got to understand, I love Costco, but I am just angry about this one thing that happened here.'"

Recession realities
"We can always blame bad sales on weather and on economic conditions and everything else. But when we have the right merchandise out on the floor, it sells. ... [W]e don't like the fact that the [average customer] basket is down, but we certainly like the fact that the customers are coming back more frequently and, as things turn, they will start to buy again. Now it is on us to get the hot merchandise."

Why he answers his own phone
"Staying in touch with your business in that fashion -- when you are getting calls from customers or you are getting calls from employees -- is very healthy. If you have it filtered, it comes back to you in an entirely different fashion."  Continued...