Ethical Issues In Human Resource Management Management Essay


There has been an increasing focus placed on the ethical responsibilities owed by employers to employees over the past decade, and an increasing body of literature has addressed the benefits that accrue to organizations that build high performance and high trust cultures that adhere to value-based ethical principles. Within an organization, perspectives about duties owed and the nature of the social contract are related to well-documented differences in national culture and the human resource management context. This paper aims to integrate the six-factor model of ethical leadership developed by LaRue Hosmer (2008) in dealing ethical issues related with implementing quality performance management systems to achieve effective human resource management. The ways on how human resource management issues are heavily influenced by ethical consequences are determined and this paper intends to suggest five propositions to assist human resource managers to be more effective.


Human resource management (HRM) is the study of managing people methodically in organizations. The unique individual member in the organization – a given executive, manager, line worker – is not the focus of HRM by itself. Rather, human resources’ methods and policies relating to repetitive cycles of staffing, reward and compensation, and performance management enlightens how any individual or group of people is introduced into the organization, managed while there, and exited from the organization. When these three central aspects of human resource management are planned effectively, the organization profits from a management system that enriches the sustained competitive advantage of the organization. A critical part of planning these aspects effectively needs consideration of ethical concerns at each stage.

Studies note that Human resource management (HRM) is currently going through rapid professionalization. Human Resources professionals encounter business ethics choices and their outcomes daily. One field, which has not been fully evaluated from studies is that of ethical dilemmas.

Ethical dilemmas in HRM can be seen as complex issues, involving personal, professional, and organizational considerations. Ethics oftentimes fall by the wayside when organizations do not have a concrete value-based culture from the top and until its way down. It is typically HR management that is called to get involved when this happens.

Various issues such as toleration of sexual harassment, hiring illegal immigrants knowingly, violation of privacy, biased performance reviews, violations on wage and work hours for the sake of saving overtime salary, termination of whistle-blowers for reasons that are totally unrelated to performance, and tolerable discrimination and more trivial issues such as lying for the sake of personal, corporate and shareholder gain.

It appears that an underlying subject in all HR-involved workplace issues is a management culture that promotes ethical ignorance – or at the very least knowingly welcomes an action to happen – even when the organization implements a Code of Ethics.

Ethical and moral issues are complex. Thinking through whose interests are involved and what consequences affects the actions-the shareholders, employees, customers, guests, and public are not easy. As an HR professional, an individual should gauge the decisions and actions that they are appropriate if nothing is done, as many at Arthur Andersen and Enron did. However, the final call isn’t for any individuals to make. Ethics is both a corporate and societal issue, which is easily becoming a legal and criminal one as well.

The highly esteemed ethics scholar from the University of Michigan, LaRue Hosmer (1987:313), observed more than two decades ago that ethical dilemmas “arise almost continually in human resource management” — noting that ethical considerations need to be integrated with financial, legal, and behavioral forms of reasoning to arrive at decisions considered to be “right,” “proper,” and “just” for the various stakeholders involved. As the framework of the business environment has become global in scope, the ethical challenges that Hosmer expressed have grown increasingly complex, the commitment between employer and employees has become fuzzier, and the importance of employees in creating and sustaining strategic competitive advantage has become more apparent yet more difficult (Pfeffer & Veiga, 1999; Dowling et al., 2009). Human resource management professionals and scholars have recognized the complex challenges involved with creating human resource systems that are aligned, congruent, and connected with their corporation’s strategic mission (Becker & Huselid, 2006), and capable of producing the high trust and commitment from employees that are conditions followers to sustaining long-term wealth creation (Senge, 2006). Developing the quality performance approach to management is a key role of the human resource management function (Pfeffer, 1998), and necessary to establishing a reputation of trust and integrity for organizational leaders (Schein, 2004).

The purpose of this paper is to determine ethical issues facing human resource management in developing quality performance management systems, and to report five ethically-based propositions important to developing these systems. We begin this paper by introducing an ethical framework provided by Hosmer and explain what is meant by quality performance systems in human resource management. We then suggest five propositions related with quality performance management systems critical to the success of human resource management.


Human resource management (HRM) has grown rapidly within the past three decades with the introduction of the worldwide web and the increase in the availability of information (Taylor, 2007). Contending within a global market has formed major economic pressures on organizations, not just because of the costs and competencies needed to grow into new markets but as competing firms expand into one’s own existing markets (Hill, 2008). Sparrow and Brewster (2006) highlighted that being successful involves being 1) competitive 2) reactive 3) flexible, suitable, and adaptive to change; 4) efficient; and 5) capable of turning over knowledge and the ability to learn across concentrated units.

Within this competitive economic context, Pfeffer (1998) has argued that quality performance or quality management systems can make a valuable contribution. The “quality performance work organization” is a business perception coined by the U.S. Department of Labor (1993:1) to motivate American businesses to be creative, adaptive, and effective in problem solving in answer to an increasingly competitive global marketplace. Research on quality performance management systems have their roots in Peters and Waterman’s (1982) business classic, In Search of Excellence, Walton’s (1985) argument of quality commitment management and Lawler’s (1986) description of quality involvement management.

As human resource efforts to enhance organizations advanced from involving employees and quality improvement to aligning systems with strategy, the focus on quality performance management began to manifest (Wood & Wall, 2007:1338-1339). Pfeffer (1994) identified sixteen factors in his primary work on organizational excellence but lowered that list to seven factors to produce quality commitment and high trust management systems (Pfeffer, 1998). Wood and Wall (2007) noted that authors and studies differ in identifying the necessary elements of quality performance systems and in the terminology used to test quality performance management practices in business settings.

The seven practices of quality performance management systems that Pfeffer (1998) identified include:

Employment Security – Providing employees a safe work environment tackles a vital human need for safety against possible threats (Noria, Groysberg, & Lee, 2008:81) and considerably increases the likelihood that employees will be committed to the advancement of productivity without apprehension that they are working themselves out of a job (Locke, 1995). A company that commits to producing job assurances for employees is also more probable to apply improved selection and hiring practices “because the firm knows it cannot simply let people go quickly if it has overestimated its labor demand” (Pfeffer, 1998:67). The management downsizing studies verifies that downsizing results in marginal economic benefits while increasing organizational distrust and reducing morale (Marks, 1993 {Pfeffer 176).

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Selective Hiring of New Personnel -Collins (2001:41) realized in his study of renowned organizations that they “get the right people on the bus, the right people in the right seats, and the wrong people off the bus.” The screening for cultural fit and employee attitude from among a broad pool of well-qualified applicants is necessary to hiring people who fit an organization’s needs (Pfeffer, 1998:74). An example is the Enterprise, the fast growing car rental agency, which emphasizes screening applicants based upon characteristics that are difficult to change through training, and hires employees based upon fundamental ability and attitude fairly than on technical qualifications which are often easily acquired (O’Reilly, 1996).

Self-Managed Teams and Decentralized Decision-Making – Empowering employees is increasingly significant in a knowledge-based, service-based, and wisdom-based economy that requires employees to take initiative and optional action in delivering customized service (Covey, 2004). Self-managed work teams are “a serious component of virtually all quality performance management systems” and results in increased autonomy, job satisfaction, and productivity (Pfeffer, 1998: 74). Boonzaier and colleagues (2001:12) noted that increased autonomy and discretion considerably improve organizational outcomes and generate increased commitment which is the key to long-term wealth creation (Senge, 2006).

Comparatively High Compensation Contingent Upon Organization Performance – Reward systems that adds to corporate-wide performance and that highlight on contributions that differentiate companies from their competitors not only makes it possible to successfully compete for key employees who make a difference but support a foundation for valuable employee incentives that match the organization’s ability to share profits with those who add to financial success (Boudreau & Ramstad, 2007). The compensation systems provided by an organization communicate to employees whether they are truly valued or whether the organization is just giving lip service to the worth of employees while treating them as a commodity rather than as a valued asset (Pfeffer, 1998:80). Another company, Nucor Steel is a great example of an organization that offers employees contingent pay, often paying employees more in bonuses than what they make in base salary each quarter (Marks, 2001: 112-113).

Training & Development – Investing in employees as significant assets in a knowledge-based economy pays off in huge dividends when the training is carefully planned and delivered – especially in problem-solving and in quality improvement (Pfeffer, 1998:85). Investments in both technical and non-technical training have a positive impact on a company’s success in developing knowledge and skills (Fey & Bjrokman, 2001:62). Improving the skills and abilities of employees in addressing customer needs and reducing the causes of customer complaints can lead in improved long-term profitability and a strategic competitive advantage that is difficult to replicate (Pfeffer, 1998:300-301; Yagiela & Munson, 1997). Evaluating the return on investment from training is increasingly being acknowledged as a critical management responsibility in a world where knowledge and information have greatly increased (Bersin, 2006).

Reducing Status Distinctions and Barriers – Factors such as dress, language, office arrangement, and wage differentials are handled in a compliant manner in many quality performance organizations to develop a culture that treats employees throughout the organization more equitably and to recognize the role of employees as ‘owners and partners’ (Block, 1996). Affirming the value of people as the source of organization success involves incorporating language that treats all employees with dignity and respect (Pfeffer, 1998:293-295). Providing access to organizational leaders and empowering employees with the opportunity to add their voices in decentralized decision-making processes creates a culture that is people-oriented and that models the virtues of leadership trustworthiness (Caldwell, Karri, & Vollmar, 2006).

Sharing Information – Creating a transparent organization that shares key information with employees not only sustains a high trust culture but enables employees to legitimately contribute to organizational decision-making (Bandsuch, Pate & Thies, 2008). Training people to play a key role in the organization requires that employees possess the critical information necessary for them to make well-informed and intelligent decisions (Pfeffer, 1998:93-94).

As human resource managers and organizational leaders strive to build high trust organizational cultures, those who guide their organizations must carefully assess not only the implicit and explicit assumptions of their own social contracts but must also carefully tune in to the perceptions of others (Caldwell & Hayes, 2007; Van Buren & Greenwood, 2008). Ethical duties owed in responding to complex issues are encompassed in a stewardship obligation that rises to the standard of a covenantal relationship (Pava, 2003). Hosmer’s (2008) model of ethical leadership provides a valuable framework for examining the subtle nature of ethical obligations owed to stakeholders and reflects the growing importance of business leaders understanding the implications of their moral choices (Pfeffer, 2007).

Pointing out on the keys to setting people first, Pfeffer (1998:299) noted that “putting people first entails recognizing the importance of people-all of a company’s people in all organizations-to organizational success.” Pfeffer (1998:299-300) explained:

“Putting people first means, in the end, taking all of them seriously and, most importantly, recognizing the opportunities to leverage knowledge and build capability and skill in all jobs . . . Putting people first means having articulated values and goals, organizational language and terminology, measurements, role models in senior leadership positions, and specific practices that make real the noble sentiments so often honored in the breach. It entails doing things that both reinforce the importance of people to organizational success and simultaneously making it more likely that the organization will have an advantage in attracting and retaining the best people and realizing their full potential.”

Quality performance management systems have been acknowledged to be a valuable contributor to achieve improved financial and operational performance (Farias & Varma, 1998), and a source of competitive advantage (Becker & Gerhart, 1996). Beltran-Martin and colleagues (2008) have noted that quality performance management systems are a key element of effective human resource management practices, and contribute to increased employee commitment, greater organizational trust, and enhanced profitability (Becker & Huselid, 1996). Nonetheless, creating quality performance cultures are both difficult to implement and to imitate by competitors because they are dependent upon well-skilled HRM professionals and organizational leaders who understand the complicated nature of organizational relationships and human nature (Pfeffer, 1998). Within a global marketplace, the role of quality performance management systems has been increasingly acknowledged to also be a topic notable of study and full with variety of ethical and value-based implications (Zhixing & Bjorkman, 2006; Dowling et al., 2009).


Assimilating the Hosmer (2008) framework of ethical management quality performance management systems applies within the HRM context, just as those concepts apply within businesses that primarily do business exclusively within the United States or within any other single country. In this section we determine four significant human resource-related propositions about quality performance systems that have important moral implications for employees and other stakeholders.

As organizations evaluate the need to expand into new markets to increase overall profits and to take advantage of their competitive position, a set of problems happens with regard to how those companies arrange with employees. Outsourcing of work resulting from expansion into new markets oftentimes results in a loss of jobs in the home country, or the country of origin of the expanding organization. The principle of ensuring employment security that is acknowledged as necessary to quality performance management systems may be undercut as outsourcing and expansion decisions result in the relocation of jobs and the reduction of positions at one location in favor of lower salaried work operated in another country. Block (1994) has noted that companies that attempt to create high-trust relationships with their employees build that trust by being honest and clear with employees regarding the factors that develop the need to downsize in one location and relocate to another. At the same time, the decision to downsize has been initiated to be of minimal economic benefit in many organizational frameworks, and several authors (Pfeffer, 1998; Cameron, 1994) have noted that a reduction in force often leads in a net loss in long-term wealth generating capacity.

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Organizations that cut back would do well to follow the example of New Zealand Post, which has shown a commitment to its leaving employees by assisting these former employees to find new positions with other companies and providing employees with generous separation packages (Pfeffer, 1998b), rather than simply setting off these employees to their own resources in trying to become reemployed (Erakovic & Wilson, 2005). By dealing exiting employees as partners with worth (Pfeffer, 1998b) and by avoiding a recurring cycle of incremental reductions(Gilson, Hurd & Wagar, 2004), New Zealand Post became a good example of creating a quality performance organizational culture despite the need to cut their organization by thirty percent. Organizations that follow the Universal Rules guideline of treating employees as valued ends rather than as a means to achieving corporate profitability blend the tenets of quality performance management systems with moral integrity (Pfeffer, 1998b). Casperz (2006) found that that Malaysian companies that professed a dedication to quality performance management systems but that did not treat employees as valued ends actually destroyed trust and employee commitment. Consistent with this thinking, the first proposition is given:

P1: Organizations that treat employees as valued ends rather than simply as a means to increased profitability will be more successful in increasing long-term profitability than organizations that treat their employees simply as a means to achieving profitability.

The utilization of expatriates as management resources in countries into which a company seeks to expand its market has been a universal practice of many companies who have entered into international expansion. Schuler and Tarique (2007) noted that staffing, particularly in the placement of top management positions, has been one of the critical issues of human resource management over the past thirty years. Expatriate selection, training and development, and retention has been a topic of extensive discussion in the human resource management literature because of the problems that frequently occur with the expatriate process, as well as the implicit moral and ethical duties owed to these expatriates and their families (Dowling, et al. 2009:109-132). A problem that often occurs is that organizations will fail to invest in the training necessary to prepare expatriate managers and their families for the cultural challenges that they will encounter in managing employees within their host country, as well as in making the transition to an entirely new culture which requires substantial personal, social, and economic adjustments. Previous studies of the expatriate problem note that human resource systems in many organizations do not adequately prepare managers for both their move to a new country or for their return to their home country after completing their assignment.

As a result of this lack of careful preparation, thirty to fifty percent of expatriate projects are considered to be a failure and many expatriates leave their companies after returning from these projects. As a result, the intended benefits of an expatriate assignment are frequently unrealized (Dowling, et al., 2009:113). Schuler and Tarique (2007) have noted that a major cause of the failure of expatriate projects has been the patterned philosophy of multinational corporations of expecting that employees will be responsible for their own careers, rather than creating a partnership between the corporation and the expatriate employee. Ironically, this policy of failing to adequately partner with high potential managerial talent serves to exacerbate the problems of leadership that plague many multinational organizations and sub-optimize profit generating efforts. This policy is neither consistent with the best practices of quality performance management systems nor consistent with the organization’s own economic self-interest (Shaffer, et al. 2006).

This study now provides the second proposition.

P2: Organizations that develop employee involvement programs and treat employees as valuable partners rather than simply as means to achieve increased profitability have employees that demonstrate greater commitment and generate a higher level of profits than organizations that do not create such employee relationships.

It has been acknowledged that knowledge sharing in organizations is vitally important in human resource management systems as attempts made by other organizations to bridge between the policies and practices of a company (Dowling, et al., 2009). Kasper and colleagues (2008:64) noted that both formal and informal relationships need to be developed between individuals and groups to produce an integrated new partnership that balances differences in perspective while constructing a framework that successfully blends corporate objectives with local capabilities. Yaping and Song (2008) noted that quality performance management systems that incorporated information sharing saw increased extra role behavior among organizational employees.

Fey and Shekshnia (2008) recommended that the key to balancing the conflicting values of a corporation is to “stand firm on big goals but be flexible on details” in creating successful partnerships in Russia. Bhatnagar (2007) found that creating a learning culture that shared information and that involved employees at all levels in policy-making and decisions enhanced employee commitment and made it easier for organizations to achieve strategic performance goals. Kontoghiorghes and colleagues (2005) suggested that firms that developed a learning organization and shared information with employees improved their ability to be innovative, to implement change, and to enhance organizational performance. Sun and colleagues (2007) found that quality performance management systems were correlated with organizational citizenship behavior (OCB). Organ and colleagues (2005) had noted that OCB, or extra role behaviors, were positively influenced by treating employees justly and creating an atmosphere of trust within organizations. Primeaux and colleagues (2003) noted that procedural and inter-actional justice elements were closely connected with employee perceptions about the trustworthiness of leaders. Consistent with the previous researches, the 3rd proposition about quality performance management systems and knowledge sharing is given:

P3: Organizations that develop human resource systems which share information with employees and that treat employees justly are more profitable than organizations which do not create such systems and do not share information.

Organizational training experts noted that the transfer of training principles to employees is frequently a major issue in the assessment of training effectiveness — noting that only about 10% of training content is actually applied on the job (Fitzpatrick, 2001;Saks & Belcourt, 2006). Training and development literature that the field must address global level contents for training and development (Dowling, et al., 2009:153). An example, IBM, recently presented the creation of its multi-million dollar Global Citizen’s Portfolio, a suite of investments and programs to aid employees enhance their skills and become professionals and global leaders (Rossi, 2007:16). Ethical training has a valuable and positive impact on practitioners’ ethical decision-making across cultures (Rottig & Heischmidt, 2007:5). Training can be a source of competitive advantage in various industries. Training is an investment in the organization’s staff, and in the current business milieu, the ability to evaluate the impact of training aids to affirm its importance to organizations (Pfeffer, 1998:88- 89). Training objectives have three major dimensions: 1) enhance working relationships, 2) tackle skill deficiencies, and 3) develop skills (Chu Ng, Siu, 2004:878). Notwithstanding the acknowledged value of training in implementing quality performance management systems (Pfeffer, 1998), Dowling and colleagues note that in many organizations, the development of successful training for employees is oftentimes given low priority due to other problems involved with establishing a new enterprise. Consistent with this research, the final proposition is provided.

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P5: Organizations that develop human resource systems that train employees effectively, particularly in skills and abilities that will enable the organization to create quality performance management system are more profitable than organizations which do not create human resource systems and that do not invest in employee training.


LaRue Hosmer (2008:13) argued in his well-known text, The Ethics of Management, that “an ethical principle is meaningless unless it can be applied” and explained business rules as “a method of moral analysis that . . . would be in the interest of society under all conditions and/or situations.” Hosmer (2008:5) also noted that moral standards “differ between peoples because the goals, norms, beliefs, and values upon which they depend also differ, and those goals, norms, beliefs, and values in turn differ because of differences in the religious and cultural traditions and the economic and social situations in which the individuals are immersed.” Hosmer clearly understood today’s global business environment that is characterized by constant change, complexity, and uncertainty (Cameron, 2003:186).

To resolve the conflicts that inevitably occur in making morally responsible decisions, Hosmer (2008:9-15) presented a series of six steps to follow as a framework for evaluating those decisions:

Recognizing the Moral Impacts

To distinguish the moral impacts of a choice, four issues are to be addressed. Firstly, what individuals or groups are going to be aided by the implementation of the decision and what is the expectation in terms of financial or personal benefit? Second, who will be affected by the implementation of the decision and what is the financial or personal nature of those harms? Third, who will be able to effectively exercise their rights as a result of the proposed action? Fourth, whose rights will be denied as a result of the proposed action?

Stating the Moral Problem

Defining and precisely articulating the moral problem clarifies the nature of the decision so that it can be effectively relayed without overlooking any stake-holder’s interests. Framing the moral problem as an extended question also recognizes the concerns of others and validates their interest in the decisions to be made. The concerns specifically determined as costs, harms, or loss of the rights of one party and benefits accruing to another, can be carefully addressed in the analysis, discussion, and conclusions drawn from the development of solutions. Hosmer (2008:9) noted that people from various backgrounds and cultures view the same issue through their individual views, and may arrive at different conclusions in regards to the nature of the moral problems involved because of their culturally-based values and assumptions.

Determining the Economic Outcomes

Economic outcomes accrue as a net benefit over threats for a full society within the framework of an open and free market. The economic assumption is that benefits are identifiable in the preference expressed for goods and services, in using the money, time and raw materials of society to optimize societal wealth efficiently. The assumptions implicit in Hosmer’s assessment are 1) all markets must be free; 2) all laws must be obeyed, and 3) all costs must be included in determining economic benefits. Supporting this same position, Hausman and McPherson (1993:673) challenged that virtually all economic choices have a moral outcome and that the morality of economic agents influences their behaviors as well as economic outcomes.

Considering the Legal Requirements

Legal requirements in moral analysis weigh the rights that are exercised versus the rights denied. These legal requirements seek to determine that which is most equitable or evenhanded within the context of a Veil of Ignorance (i.e., determining fairness and the balance of rights vs. wrong if everyone considered the laws to adopt while ignorant of their own self-interests). Hosmer noted the challenge of focusing on the self-interest of all of society but argued that this Veil of Ignorance model is ideal for measuring the efficacy of laws. Nesteruk (1999:306) has noted that legal and moral issues are historically intertwined in the analysis of workplace issues.

Evaluating the Ethical Duties

In assessing ethical duties, moral analysis encompasses obligations owed by members of society to others within that society, and often weighs personal self-interests with the impacts of actions on society. Ethical duties generate a set of rules that benefit society under different scenarios. Although there are various ethical perspectives which produce slightly different outcomes (Hosmer, 1995), Hosmer proposed that the essence of morality can be summarized by six universal rules.

Recommending a Moral Solution

A recommended moral solution must specifically determine the stakeholders affected; the moral issues to be addressed; and the corresponding benefits, threats, and involved rights. Management practitioners (DePree, 2004) and scholars (Caldwell & Karri, 2005; Cameron, 2003) have noted that moral solutions must not only positively impact the welfare, growth, and universality of all stakeholders but must also support societal wealth creation.

Hosmer’s (2008) model gives a framework for assessing a broad variety of business domains, including the central issues of human resource management. Following this model enables moral decision-makers to produce a solution that is transparent in its articulation of impacts and that develops objective discussion of the tacit values, beliefs, assumptions, and goals involved. As Forsyth and colleagues (2008) have noted, ethical perspectives differ significantly across cultures.


As human resource managers and organizational leaders strive to develop high trust organizational cultures, human resource professionals must carefully evaluate not only the implicit and explicit assumptions of their own social contracts but must also carefully tune in to the perceptions of others (Caldwell & Hayes, 2007; Van Buren & Greenwood, 2008). Ethical duties owed in responding to complicated issues are encompassed in a stewardship obligation that rises to the standard of a committed relationship (Pava, 2003). Hosmer’s (2008) model of ethical leadership provides a significant framework for examining the simple nature of ethical obligations owed to stakeholders and reflects the increasing worth of business leaders understanding the implications of their moral choices (Pfeffer, 2007).

The four propositions offered in this paper generate an opportunity for scholars and practitioners to discuss how to apply management practices that responsively and generously address the complex concerns of business management (Dowling, et al., 2009:294-295). Although dealing with the varying values of businesses and cultures is both complicated and even ambiguous (Hill, 2008: 124:151), the consequences of making smart choices and gaining the trust and commitment of stakeholders is a necessity for successfully competing in a global marketplace (Lawrence & Webber, 2008) and achieving a sustainable competitive advantage (Collins & Clark: 2003).

When quality performance management practices are implemented in organizations, Tremendous gains may come. In quality performance management cultures, people perform wiser because they are motivated to build skills and competence. Individuals perform more responsibly because more responsibility is placed in hands of employees farther down in the organization (Pfeffer & Veiga, 1999:40). Quality performance and high trust practices improve employee commitment as the organization relates to employees that it supports their efforts to improve, treats employees fairly and values their self worth and importance (McElroy, 2001: 334). Organizations acquire strategic competitive advantage by putting individuals first – demonstrating to employees that they are, in fact, the source of differentiated excellence in a knowledge and service economy.

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