how can I hire good candidates to work in a dysfunctional environment?

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A reader writes:

I work for a small organization (about 40 employees) that is currently in transition. We have had significant staff turnover in the last two years, and the result has pushed the organization into a level of dysfunction that I know will drive many good quality candidates away.

However, I still have to hire people (I have two positions currently open), and I want to hire the best people possible, particularly as I think that poor hires will just make the situation worse. How, do I manage to

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