SOURCES OF POTENTIAL CRISES AT HONG KONG INTERNATIONAL AIRPORT FOR THE AIRPORT AUTHORITY (“AA”)

1. LEADERSHIP FORUM 2005SUCCESSES THROUGH ETHICAL GOVERNANCECORPORATE GOVERNANCE IN PRACTICECODES OF CONDUCTAT HONG KONG INTERNATIONAL AIRPORTPresented by:Alex Derbie, Legal Director and Secretary to the BoardAirport Authority Hong Kong16 June 2005

2. SOURCES OF POTENTIAL CRISESAT HONG KONG INTERNATIONAL AIRPORTFOR THE AIRPORT AUTHORITY (“AA”) • Safety • Quality • Security • Environment • Ethics and Governance • Efficiency • Public Health • Financial

3. AA’S GOVERNANCE IN PRACTICE 1. “People Approach” for General Conduct and Behaviour 2. Corporate Performance

4. AA’S “PEOPLE APPROACH” (I) • Ethics and Governance – a core value of the AA. • The Code of Conduct promotes this core value. • Its Purposes: • To provide broad guidelines to assist staff members in making ethical decisions in the course of their duties; • To inform and remind staff members of their legal and ethical obligations to the AA and other stakeholders; • To advise staff members against inappropriate and unacceptable behaviour; and • To inculcate a culture of integrity and excellence in corporate governance through ethical behaviour.

5. PEOPLE APPROACH (II) AA’s ‘ETHICS PYRAMID” Legal Compliance 遵守法律 Corporate Governance Policy Code of Conduct 機構管治政策 職員行為守則 General Conduct & Behaviour 一般品德及行為操守 “Mindset” 心態

6. PEOPLE APPROACH (III) GENERAL CONDUCT AND BEHAVIOUR • Fundamentals • Staff members should be proud of doing things right. • An ethical mindset is most important. • A proud working organization with high principles. • To maintain the good image of the AA in the eyes of the public. • Set a good foundation for governance and make ethics core to our business.

7. PEOPLE APPROACH (IV) Lead by Example with an Integrated Approach Commitment to manage risk • Assess risks robustly • “Dig-down” with involvement of staff at all levels • “Integrate” – the AA is a business of “integrated diversities” • Meet the costs of establishing and maintaining internal controls • Ethics Panel with published guidelines and transparent process Culture of honesty and ethical behaviour • “Mindset” • Communicate and demonstrate • The foundation is the Code of Conduct for employees • Appropriate actions and responses • Training and awareness

8. PEOPLE APPROACH (V) OBLIGATIONS TOWARDS THE AA • Public body/Public servants – high standards and implications. • “AA Standard” vs “Noodle Shop Standard”. • “Every action/favour is to be returned in reciprocity” AND “Being owed a favour can be a powerful strategy”. This is NOT AA practice. • “NIL” incidents

9. CORPORATE PERFORMANCE (I) GOOD CORPORATE GOVERNANCE AA Believes: • Leads to better corporate performance • Is essential for long-term sustainable growth • Fairness, transparency and accountability • In institutionalising a comprehensive framework • Fostering ethical and responsible culture • It should not rely on rules, regulations and legislation

10. CORPORATE PERFORMANCE (II) HUMAN INTERVENTION • All of the notorious corporate accounting and financial reporting scandals have been caused by human intervention, typically by managers and senior managers and/or officers, usually involving collusion, and always involving the circumvention of controls, policies and procedures. (*) * Price Waterhouse Coopers

11. CORPORATE PERFORMANCE (III) TANGIBLE VALUE 2.Good Governance Adds Tangible Value according to a survey of over 200 institutional investors conducted by McKinsey & Co. • 75% said board practices are as important as financial performance in evaluating investment opportunities. • Over 80% said they would pay more for shares of a well-governed company. • Share premium investors are willing to pay for good governance ranges from 18% to 27%.

12. CORPORATE PEFORMANCE (IV) GOVERNANCE (NOT) IN PRACTICE 3.Corporate America • Did you know? If you had bought $1,000 worth of Nortel stock two years ago, it would now be worth $49. With Enron, you would have $16.50 of the original $1,000. With WorldCom, you would have less than $5 left. If you had bought $1,000 worth of Budweiser (the beer, not the stock) two years ago, drank all the beer, then turned in the cans for the 10 cent deposit, you would have $214. (*) * Price Waterhouse Coopers

13. SUCCESSES (I) Transparency International Corruption Perception Index 2004 * CPI Score relates to perceptions of the degree of corruption as seen by business people and country analysts and ranges between 10 (highly clean) and 0 (highly corrupt).

14. SUCCESSES (II) POLICING GOOD PRACTICES • Code of Conduct Training • Self-policing – training is the key • Proper “checks-and-balances” • Partner with the ICAC • Prevention of Bribery Ordinance (HK) • Nil incidence of corruption • “Whistleblowers” protected • Reporting Receipt of Gifts • Awards: “Diamond” - 2002 “Platinum” - 2003

15. AND FINALLY: THE KEY IS “MINDSET” Legal Compliance 遵守法律 Corporate Governance Policy Code of Conduct 機構管治政策 職員行為守則 General Conduct & Behaviour 一般品德及行為操守 “Mindset” 心態 THANK YOU XIE XIE