Redgrove Axial Workshop Case Study

What Fontaine is Trying to Achieve5 Challenges of a New Position6 Corporate Culture6 Axial Workshop7 Beneath the Surface7 Use/Abuse of Discretion8 Scope of the Problem10 Stakeholders10 Identification of Available Options10 Ethical Principles Discussion 14 Consequentialist Theory14 Deontological Theory19 Virtue Ethics21 Recommendation23 References25 Appendix A: Picture of Ornament Found in Workshop Storage 26 Appendix B: Redgrove Monthly Plant Scap-Metal Sales, 27 12-Month Period Appendix C: Excerpt from ITE Code of Conduct28

Appendix D: Summary of Redgrove Records of Material29 Misappropriation Incidents and Sanctions, 1998-2007 Appendix E: Consequentialist Analysis – Option A 30 (Do Nothing) Appendix F: Consequentialist Analysis – Report Incident, 31 Request Guidance Appendix G: Consequentialist Analysis – Don’t Report, 32 Handle Incident In-House Appendix H: Consequentialist Analysis – Report Incident 33 but Recommend Actions and Gain Upper Management Buy-In Abstract This paper addresses the ethical issues at Redgrove Axial workshop.

Marc Fontaine is the manager of the compressor manufacturing division at the Redgrove Plant, and has been on the job approximately one month when he discovers employees have been using company equipment to build personal decorative ornaments utilizing scrap material which is normally sold to recycling companies. This practice is against the company’s written code of conduct; however, the workshop foreman’s knowledge of the practice and failure to prevent it has condoned the behavior.

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Facts of the Case: Marc Fontaine has recently become the manager of compressor manufacturing at Redgrove Axial Workshop, part of the International Technology and Electronics (ITE) Corporation. This position is a temporary one as part of a larger ITE accelerated leadership program. After a month on the job, Fontaine discovers a number of ornaments (Appendix A) in the workshop’s storage room which appears to be made from the same material used to make the compressors.

Fontaine believes employees of his department may be using company materials, comprised of scraps and metal shavings – normally sold to a local recycling company (Appendix B) – for personal use and felt he needed to notify the Manufacturing Director (Sam Collins) and Plant Director (Peter Garland) about the incident. Upon further investigation, Fontaine discovers the practice of utilizing production materials for personal use is against ITE’s Code of Conduct and punishable by warnings, termination, withheld pay, criminal charges, and suspension (Appendix C).

Fontaine also acquired a list of previous incidents and related punishments (Appendix D). Fontaine approaches Jim Page, a plant foreman who supervises the Axial Workshop, about the ornaments. Page states he has not seen the objects in the supply room, and the personal work was infrequent and of little value because they were made of scrap. As far as he knew, employees made projects on their own time and he had never made an issue out of the practice because the workshop is Redgrove’s most productive unit.

In order to gain a better understanding of the practice, Page recommends Fontaine speak with Peter Kadosa, a workshop employee. Kadosa was a good worker, had a good attitude, and was moving to a new position on the West Coast in January. Upon questioning “off the record,” Kadosa provided the following information: he was unsure of the history regarding the practice; implied the more experienced and better craftsmen were involved; and only occasionally would one of the workers ask him to set aside a bigger piece of scrap.

Fontaine also learned of the unwritten code of conduct in the workshop which applied to the gift / ornament making: new material could not be used (scraps only); before anyone started a project they were expected to obtain approval from one of the senior craftsmen; selling projects was frowned upon; and the plant foreman did not care to know about the practice. What Fontaine is Trying to Achieve: Fontaine is aware the use of scrap material for personal projects is against the company’s Code of Conduct and feels obligated to report the misappropriation.

However, he also observes how well the workshop’s employees work together, how productive they are, and the existence of an unofficial code of conduct which is followed in regards to the practice of creating ornaments. He is torn on whether or not to bring attention to this practice because he wants workers to continue to work efficiently and effectively and taking away their projects may disrupt this; however, he also wants to follow the rules and has an obligation to the company as well as to the employees in his division. Challenges of a New Position:

What makes this situation more difficult for Fontaine is that he is new to the company and being in the accelerated leadership program, will most likely not be in his position for long. This adds to his dilemma because one of the biggest challenges when taking on a new position in a new organization is getting comfortable with the corporate culture. When first joining an organization, an employee handbook is provided which dictates all of the do’s and don’t’s outlined by management – but the new employee may not immediately understand how closely the company actually follows these rules.

In this case, Fontaine knows the rules prohibit using scrap materials for personal use, but the corporate culture has allowed these projects to continue for a long period of time; this places Fontaine in a precarious position considering his relatively short tenure (between one year and 18 months) – does he attempt to change the well established but unwritten corporate culture, or does he condone the behavior and allow his successor to deal with the ethical issues? Corporate Culture: From the initial readings of the Case Study, the corporate culture of the workshop is one of Collaboration, or “Clan” culture.

The workshop is an open place to work which accepts the employees as peers. Group loyalty is important, and an unofficial chain of command exists within the workshop with the more senior and talented employees being seen as the leaders and mentors to the newer, younger employees. In addition, the better and more skilled craftsmen take the time to train others on the more difficult skills. Assuming the company proactively addresses the issue, the corporate culture will change to that of control, or hierarchical.

Rules and procedures would be put in place based on the recommendation of Fontaine and buy-in from upper management, whereby employees can practice their skills to become masters in their field, while simultaneously maintaining workshop cohesion and morale. Axial Workshop The Axial Workshop team is extremely effective. They are referred to as “the AXE,” and contribute 20% of the Redgrove Plant’s annual revenues and 23% of its operating margin. The AXE has been described as the most effective in the plant. The AXE team is known to be hard workers, and people rarely transfer out of the workshop.

Senior workers work closely with junior workers showing them techniques they have developed and getting the junior workers acquainted to the workshop. Beneath the Surface Workshop employees use scrap metals from production of the compressors to produce personal ornaments made by utilizing company machinery. Employees work on these projects infrequently on their own time (off the clock). Workers have unwritten rules to the practice of personal work including: projects must be approved by a senior craftsman, no new material can be used, projects cannot be made in order to be sold, etc.

In addition, the workshop foreman has condoned the behavior – though he is aware of the practice, he has allowed it to continue; employees believe the practice is acceptable. Use / Abuse of Discretion: Discretion is the right to choose something, or to choose to do something, according to what seems most suitable in accordance with a situation. However, this discretion can be easily abused especially when management condones or turns a blind eye towards behavior which may border on the unethical.

For example, the workshop’s Foreman, Jim Page, has decided to turn a blind eye to the practices going on within the workshop. Fontaine is now faced with the ethical problem and has the discretion to do something about it. The use or abuse of discretion can become a problem in many professions. The following are examples of profession’s use or abuse of discretion. 1) Banking (specifically lending) – Banks have the discretion on whether or not to authorize a loan to a customer (based primarily on information such as income, use of loan proceeds, credit score, amount of current debt, etc).

During the recent banking debacle, banks approved questionable loans (ie no income verification). 2) Police officers – Generally have the discretion to write a speeding ticket or not. This power is abused when the police officer frequently allows family and friends off without a ticket, even when they were speeding in excess of twice the speed limit. 3) Judges – Have the discretion to approve a certain sentence (whether maximum or minimum). Power can be easily abused, as seen in class by the FBI presentation on white collar crimes and the amount of punishment doled out.

Additionally, judges also rule on Social Security Disability cases – a Wall Street Journal Article on 26NOV11 discusses the abuse of power by a certain judge who has only disallowed 4 cases out of over 1000 during the past year – well beyond what is expected by the Social Security Administration 4) Retail – managers have the authority to grant discounts to certain groups of personnel – for example, Dave’s Cosmic Subs ordinarily gives discounts to police officers and firefighters in uniform, but certain managers will also provide a discount to members of the military, contrary to guidance provided by the chain’s owners. ) Commanders in the military – have the discretion to dole out non-judicial punishment for small, minor offenses. Being both judge and jury, Commanders have the discretion to determine the punishment – but occasionally, Commander’s abuse this authority by not fitting the punishment to the crime (a requirement) – resulting in the punishment being overturned upon appeal. Scope of the Problem: Fontaine is faced with how to handle the misappropriation of the scrap materials and utilization of company machinery to support the practice. He is new to the company and is not yet familiar with the corporate culture.

He wants his division to continue to run effectively and efficiently, but is concerned that bringing attention to the practice of making personal projects could disrupt his division. However, allowing the practice to continue could force Fontaine and his employees to face severe repercussions. Stakeholders in the Case: Plant employees; workshop employees; Marc Fontaine (manager of compressor manufacturing); Jim Page (workshop foreman); Peter Kadosa (workshop employee); investors to the company; and upper management of the plant (Sam Collins – manufacturing director, and Peter Garland – plant director). Identification of Available Options:

Prior to developing various options to deal with the dilemma, Fontaine should do the following: ascertain with H/R to determine if a requirement exists when an employee is hired to review the Company’s Code of Conduct; if employees are required to sign an acknowledgement after reviewing the Code of Conduct; if employees are periodically required to conduct refresher training on the Code of Conduct; if employees are required to review the Code of Conduct upon transfer from different departments; if the Code of Conduct is posted in public locations within the factory; any agreements between the union and the plant which may authorize employees to use scrap and company machinery for personal use; and if violations of the Code of Conduct and related disciplinary actions are publicized or posted in public locations throughout the factory.

Once all of this information is ascertained, we can assess the available options:

1) Option A – Do nothing.

Fontaine could elect to do nothing, allowing employees to continue the practice of occasionally using scrap metal for personal projects on company machinery and not report it to upper management. Staying silent would keep things as they are now with high employee morale, teamwork, and efficiency. However, if Fontaine decides not to say anything and upper management discover the practice, then Fontaine, Page, and the workers involved are all susceptible to sanctions.

2) Option B -Report the incident to upper management and ask for guidance on how to proceed.

This may be a viable option since Fontaine is unsure as to whether upper management approves of the practice in order to maintain high morale, combined with his short tenure as the manager of compressor manufacturing. However, management may feel negatively towards Fontaine for not providing recommendations on dealing with the practice – specifically, that he is not ready to lead. But, as seen in Annex B, management has been fairly strict with similar violations in the past; reporting the practice may lead to unwanted investigations and punishment for workshop employees.

3) Option C – Fontaine does not report the incident but handles the situation in-house within the “Axe. ” He can have a meeting with all employees in the workshop, and explain the following: a.

The ITE Code of Conduct authorizes the use of production materials only for the exclusive use of advancing the mission of the ITE Corporation; b. The list of infractions from 1998-2007 along with the associated sanctions; c. The items discovered in the storage room, and the fact that though the activity was condoned before, it does not make the practice justifiable. However, because the activity was previously condoned, the new policy of not conducting personal work and utilizing material scraps and company machinery takes effect immediately; d. The liability of the company should an employee become injured while working on an ornamental piece while not in a “paid” status; and e.

Material is purchased by ITE for a specific purpose, which ITE receives compensation from a recycling company for production scraps – and the unlawful use of such material is in fact theft from the company; Fontaine should then share the recycling amounts by poundage and dollar amounts. He should also explain that this material, even if small when compared to the total amount recycled, affects ITE’s balance sheet and therefore affects all employees in regards to pay and bonuses, as well ITE’s owners (whether public or private). 4) Option D – Report the incident to the Director of Manufacturing and the Plant Director, recommending a course of action on how to proceed within the “Axe” in order to gain upper management buy-in.

This option allows for Fontaine to groom himself as a better leader, while showing management he is prepared to deal with issues within his area of responsibility. These recommended actions would include: a. Amnesty for employees due to the practice being condoned by the workshop foreman; b. H/R training for Page, the workshop foreman, specifically focused on supervisor duties and responsibilities, as well as a review of all company policies to include the Code of Conduct; c. Implement an H/R policy where employees sign an acknowledgement of the Company’s Code of Conduct upon hiring; d. Annual review of the Code of Conduct for all employees; e. Review of the Code of Conduct upon transfer from one part of the factory to another part; . Request an exception to policy whereby employees can purchase scrap from the factory at the same rate the factory sells it to the recycling company, or offer a small percentage of scrap to employees for free as an added benefit. In order to have better skilled workers, allow these employees a certain amount of time each pay period (possibly an hour per week) to hone their skills whereby they are covered by worker’s compensation should they become injured during this additional training time; and g. Permission to post the Code of Conduct and the Material Misappropriation and Sanctions List throughout the “Axe. ” Ethical Principles Discussion:

Three ethical principles will be used to offer an analysis to the ethical issues Fontaine is currently facing; we will use Consequentialist Theory, Deontological Theory, and Virtue Ethics. Consequentialist Theory: An ethical decision should maximize benefits to society and minimize harms. What matters is the net balance of good consequences over bad for society overall. Identify the stakeholders in the situation as well as the alternative actions and their consequences (harms/and or benefits) for each. Looking at this case using a consequentialist view we examine how each of the four alternatives we have devised affects each of the stakeholders identified. Option A: Do Nothing (see Annex E for the Consequentialist Analysis to this option). This alternative involves Fontaine leaving the workshop as it is and turning “a blind eye” to what is going on in the shop. Stakeholder benefits to this option include: Continued high morale of employees by not having to purchase materials and continued use of company equipment; maintains Fontaine’s reputation by being “one of the guys” by not taking action; prevents Page from possibly getting into trouble for condoning the practice; and protects Kadosa from providing information to Fontaine on the practice.

Stakeholder harms to this option include: Plant employees not aving the ability to possibly receive bigger pay or bonuses due to the lack of the company receiving all proceeds it is entitled to from the sale of scrap material; workshop employees possibly being injured on the job while conducting unauthorized work; company investors/owners not receiving the full value of the sale of scrap and possibly being liable for any injury a workshop employee experiences while participating in unsanctioned/unauthorized work; Fontaine violating his personal integrity and values by condoning the activity which violates the company’s Code of Conduct; and upper management not receiving bigger pay or bonuses due to the company not receiving all proceeds from the sale of all scrap. – Option B: Report the incident, but request guidance from upper management (see Annex F for the Consequentialist Analysis for this option).

Stakeholder benefits to this option includes: if upper management stops the practice, plant employees may see higher salaries or bonuses due to the company being able to garner all proceeds from the sale of all scrap material; company owners/investors receiving all value from the sale of all scrap material; upper management believing Fontaine’s integrity is beyond reproach; upper management being able to implement the changes it sees fit in order to recover company resources; and the company and management not being liable to any employees who may be injured during unsanctioned work. Stakeholder harms to this option include: possible suspension or termination of those workshop employees who have been identified as condoning and participating in unsanctioned work; upper management thinking Fontaine is not ready to be a manager by asking for guidance; Page possibly being implicated for condoning the practice of unsanctioned work, possibly resulting in suspension or termination; and Kadosa being implicated by his co-workers for confirming the practice to Fontaine, resulting in the loss of respect from his peers.

Option C: Do not report, but handle the situation in-house within the “Axe” (see Annex G for the Consequentialist Analysis for this option). Stakeholder benefits to this option include: plant employees receive their fair share of salaries or bonuses tied to the profits resulting from the recycling of all scrap material; workshop employees and Fontaine both build rapport with each other by handling the issue in-house without any further repercussions; company owners/investors have more in the balance sheet through the sale of all scrap material if the practice is stopped; and Page does not face the possibility of termination or suspension for condoning the practice.

Stakeholder harms to this option include: Workshop employees may view this as an intrusion into their autonomy; no recoupment to company owners/investors for the practice of taking scrap material; Fontaine being potentially liable for not reporting the incident up the chain of command as you would expect a manager to do; Kadosa losing credibility with his coworkers for confirming the practice to Fontaine; and upper management having lower level management condoning the prior bad practices and starting anew without repercussions, thereby usurping their authority. – Option D: Report the incident, but recommend actions to upper management and obtain their buy-in (see Annex H for the Consequentialist Analysis for this option).

Stakeholder benefits to this option include: Unsanctioned work is stopped and plant employees may see an increase in salary/bonuses; workshop employees may be able to continue creating ornaments if upper level management authorizes/sanctions extra work as a benefit to an employee who is honing his/her skills; company owners/investors see an increase to the balance sheet from the proceeds of all scrap material, while at the same time being protected by workers compensation should an employee get injured while honing his/her skills under authorized work; Fontaine gains the respect of his superiors for thinking outside the box and coming up with his own solutions while protecting the employees and the company; Page receiving requisite training to become a better supervisor who supports the company’s values and ideals; and upper management having an empowered subordinate while increasing the balance sheet from the recycling of all scrap. Based on the tenets of consequentialist theory, option D promotes the greatest benefit with the least amount of harm to each of the stakeholders.

Deontological Theory: Bases the decision on what is right on a broad, abstract universal ethical principle or value such as honesty, fairness, loyalty, rights, and respect for human beings and property. Certain moral principles are binding, regardless of the consequences. Therefore, some actions would be considered wrong even if the consequences of the actions were good. Looking at this case using a deontological perspective, we xamine what the duties of Mr. Fontaine are. As a manager at the company Fontaine has a duty to both the company and the stockholders of the company. However, he also has a duty to the employees he manages and to look out for their best interests. Based on these duties, the first alternative does not serve the best interests as it does not fulfill his duties to the company and the investors. By taking no action the company will continue to lose the revenue which could be generated from the stolen scrap material. The second alternative serves Fontaine’s duty to the company by ensuring that the business will not lose any further revenue to misappropriation of assets.

However, this alternative could harm his employees as they will likely lose their jobs if there is an investigation into the scrap material. The third alternative allows Fontaine to handle the incident in-house without having to inform upper management. This alternative allows Fontaine to build rapport with his employees; however, he fails to do his duty by not reporting what he has found to his superiors. In addition, this alternative allows Fontaine to lay out his expectations of what is right and wrong with his employees, while at the same time protecting the reputation of Page, who previously condoned the activity by not stopping it. Fontaine exhibits loyalty to his subordinates, but he is not exhibiting loyalty to upper management by not reporting the incident.

The final alternative, to report the incident while obtaining upper management’s buy-in to recommendations, maintains the loyalty of Fontaine to the company, as well as to the employees. Because the practice has been condoned in the past, it is unfair to punish the employees; what is fair, however, is to seek some type of median, such as employees purchasing the scrap and utilizing company machinery to hone their skills, which maintains morale and allows the company to have better trained and skilled workers. Based on deontological theory, the final alternative embraces honesty, fairness, loyalty, and respect for company property. Using scrap material to make personal objects has an overall positive impact on employee morale.

Obtaining buy-in from upper management to sanction this activity, whereby employees pay for scrap but in turn the company has a better trained worker, illustrates loyalty from the company to the employee. Virtue Ethics: This approach focuses more on the integrity of the moral actor than on the moral act itself. This perspective considers the actor’s character, motivations, and intentions. According to virtue ethics, it is important that the individual intends to be a good person and exerts effort to develop him or herself as a moral agent, to associate with others who do the same, and to contribute to creating an organizational context which supports ethical behavior.

The “Axe” has been operating under the auspices of virtue ethics when dealing with manufacturing ornamental decorations. This is evidenced by: a. Page did not feel that the projects were of material value, because the employees used scrap; b. Page thought the employees made the objects on their own time; c. Kadosa’s impression was that the practice was limited to some of the better craftsmen in the group – the ones who typically did the best work, volunteered for overtime, and often helped out other employees who were having trouble; d. Kadosa believed that the workers involved in the practice clearly did not see themselves as “thieves,” but rather as skilled builders who took scarps and made something beautiful from them; e.Kadosa recalled an incident when he saw some of the craftsmen scold an employee for using new material to make a small ashtray – the point was the employee attempted to use new material to make it. f.

Before anyone began an unofficial project, they were expected to touch base with a few of the more senior craftsmen to see if it was OK; g. Kadosa felt that making something to sell, compared to something what was mainly for personal use, was collectively frowned upon. The motivations for the group which manufactured the “gifts” were deemed as a noble cause and were meant for personal use, normally as gifts. Additionally, an unwritten set of rules, or unofficial “Code of Conduct,” ppears to have manifested itself within the workshop, such as seeking permission, only using scraps and not new material, and using the objects for personal use rather than for personal gain. Option A, to do nothing, does not contribute to ethical behavior by allowing employees to continue to the practice of using company materials and equipment for personal use. Option B, reporting the incident to upper management and seeking guidance on how to proceed, facilitates ethical behavior; however, employees may be punished when the activity was blatantly condoned by a member of management. Option C, not reporting the incident and handling the situation in-house, facilitates ethical behavior in the workshop employees; however, Fontaine does not exhibit ethical behavior since he is not reporting the incident to management.

In accordance with deontological theory, Option D, reporting the incident but obtaining management buy-in on the recommendations, truly creates an organizational context which supports ethical behavior; employees are able to hone their skills, sanctioned by upper management, resulting in a highly motivated and more efficient employee, both which contribute to the Company’s success. Recommendation: The practice of using scraps of material and company machinery in order to build decorative ornaments has been condoned by management for years. In addition, these ornaments have already been made (being stored in the storage room), so it will be difficult to ascertain those personnel responsible for the practice. Each of the three ethical principle analyses resulted in Option D being the favored course of action. Fontaine should inform upper management of the incident upon discovering the ornaments and obtain their buy in with his recommended course of action.

Upon approval: remind employees of the Code of Conduct and post it prominently throughout the workshop; post throughout the workshop the infractions and punishment for recent misappropriations of material, next to the Code of Conduct; request H/R to implement new policies to annually have employees review the Code of Conduct, as well as upon transfer to different departments within the plant; have required training for Page on company policies to make him a better leader; allow employees to purchase scrap at cost; and possibly request permission for employees to use scraps and machinery for special purposes/events (ie Christmas, going away gifts), as a means to improve the skill and capability of all employees as a version of on-the-job-training. Ultimately, the company will have highly motivated employees with better skills and high morale, resulting in improved production in the “Axe. ” REFERENCES Anteby, Michel, & Hyman, Mikell (2011). The Redgrove Axial Workshop (Rev. Jan. 5, 2011). Boston, MA: Harvard Business School. Trevino, L. K. , & Nelson, K. A. (2011). Managing Business Ethics: Straight Talk About How To Do It Right (5th Ed. . Hoboken, NJ: John Wiley & Sons, Inc. www. haworth. com/en-us/Knowledge/Workplace-Library/Documents/Four-Organizational-Culture-Types_6. pdf Last Call: an Interactive Multimedia Simulation. Facilitator’s Guide Page 12. Protection of Company Assets ITE employees must protect company assets.

Company assets include a) intellectual property and trade secrets, b) business strategy, c) financial data, d) production materials, e) equipment, f) fleet, furniture, and g) computer supplies and software. Company assets are intended for the exclusive use of advancing the mission of the ITE Corporation. 3b. Sanctions Failure to protect company assets will result in sanction commensurate to the company loss. Sanctions can range form warnings to termination, and might include withheld pay. Criminal charges in courts might also be filed if deemed necessary by the ITE Corporation. Source: ITE documents. APPENDIX D Summary of Redgrove Records of Material Misappropriation Incidents and Sanctions, 1998-2007 ) February 1998: A workshop worker was reported by an anonymous source to be “stealing company materials. ” (The HR department received a letter). Upon closer inspection, it turned out the worker was making a window frame for his house, and doing this at the end of his day shift. He received a “stern warning,” “two days without pay,” and was told that the next infraction would lead to termination. 2) December 1998: A storage room employee was discovered with raw, expensive materials (titanium) in his car as he was driving out of the plant. The employee was fired. 3) November 1999: During a random search of employees exiting the plant, a guard found a miniature turbine. The worker who was found with it claimed it was a gift for his brother.

The worker received a three-day suspension and was warned that any additional discoveries would result in the termination of his employment. 4) June 2002: The purchasing director found a number of workers distributing pins they had manufactured to “commemorate” the launch of a new aircraft. The pins were made from workshop scraps. Three of the workers were suspended without pay for two days. 5) March 2003: A visiting ITE director asked about a set of metal candlesticks at a local “antique shop. ” The vendor explained that they had been made at the nearby Redgrove plant. The director asked for the maker’s name, but the shopkeeper claimed ignorance. An internal audit was conducted to no avail.

The candlesticks disappeared a few weeks later from the shop: “bought by a city person,” according to the shopkeeper. 6) January 2005: In a regular random search of a car exiting the plant one evening, the on-duty guard discovered metal forging tools and workshop scraps in the trunk of an employee’s car. The incident resulted in a “warning,” and the employee retired several months early, shortly thereafter. Source: Casewriter ANNEX E Consequentialist Analysis – Option A (Do Nothing) [pic] ANNEX F Consequentialist Analysis – Report Incident, Request Guidance [pic] ANNEX G Consequentialist Analysis – Don’t Report, Handle Incident In-House [pic] ANNEX H Consequentialist Analysis – Report Incident but Recommend Actions, Gain Upper Management Buy-In [pic]

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