LEADERSHIP FORUM 2005 SUCCESSES THROUGH ETHICAL GOVERNANCE CORPORATE

LEADERSHIP FORUM 2005 SUCCESSES THROUGH ETHICAL GOVERNANCE CORPORATE GOVERNANCE IN PRACTICE CODES OF CONDUCT AT HONG KONG INTERNATIONAL AIRPORT Presented by: Alex Derbie, Legal Director and Secretary to the Board Airport Authority Hong Kong 16 June 2005 1 AIRPORT AUTHORITY HONG KONG

SOURCES OF POTENTIAL CRISES AT HONG KONG INTERNATIONAL AIRPORT FOR THE AIRPORT AUTHORITY (“AA”) ● ● ● ● 2 Safety Quality Security Environment Ethics and Governance Efficiency Public Health Financial AIRPORT AUTHORITY HONG KONG

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

AA’S “PEOPLE APPROACH” (I) l l l 1. 2. 3. 4. 4 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. AIRPORT AUTHORITY HONG KONG

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 5 AIRPORT AUTHORITY HONG KONG

PEOPLE APPROACH (III) GENERAL CONDUCT AND BEHAVIOUR l 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. - 6 AIRPORT AUTHORITY HONG KONG

PEOPLE APPROACH (IV) Lead by Example with an Integrated Approach Commitment to manage risk l l l 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 7 l “Mindset” l l Communicate and demonstrate The foundation is the Code of Conduct for employees Appropriate actions and responses Training and awareness AIRPORT AUTHORITY HONG KONG

PEOPLE APPROACH (V) OBLIGATIONS TOWARDS THE AA Public body/Public servants – high standards and implications. 2. “AA Standard” vs “Noodle Shop Standard”. 3. “Every action/favour is to be returned in reciprocity” AND “Being owed a favour can be a powerful strategy”. This is NOT AA practice. 4. “NIL” incidents 1. 8 AIRPORT AUTHORITY HONG KONG

CORPORATE PERFORMANCE (I) GOOD CORPORATE GOVERNANCE AA Believes: l l l 9 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 AIRPORT AUTHORITY HONG KONG

CORPORATE PERFORMANCE (II) HUMAN INTERVENTION 1. * 10 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 AIRPORT AUTHORITY HONG KONG

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

CORPORATE PEFORMANCE (IV) GOVERNANCE (NOT) IN PRACTICE 3. Corporate America l 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 World. Com, 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. (*) * 12 Price Waterhouse Coopers AIRPORT AUTHORITY HONG KONG

SUCCESSES (I) Transparency International Corruption Perception Index 2004 Country Rank 2004 CPI Score* 1 Finland 9, 7 2 New Zealand 9, 6 Denmark 9, 5 Iceland 9, 5 5 Singapore 9, 3 16 Hong Kong 8, 0 Cote d'Ivoire 2, 0 Georgia 2, 0 Indonesia 2, 0 Tajikistan 2, 0 Turkmenistan 2, 0 Azerbaijan 1, 9 Paraguay 1, 9 Chad 1, 7 Myanmar 1, 7 Nigeria 1, 6 Bangladesh 1, 5 Haiti 1, 5 3 133 140 142 144 145 13 Country * 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). AIRPORT AUTHORITY HONG KONG

SUCCESSES (II) POLICING GOOD PRACTICES l l l l l 14 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 AIRPORT AUTHORITY HONG KONG

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 15 XIE THANK YOU AIRPORT AUTHORITY HONG KONG