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Vanguard's approach to corporate governance

Vanguard's core purpose is "To take a stand for all investors, treat them fairly and give them the best chance for investment success." Consistent with that mission, Vanguard strives to make sure the companies our funds invest in are subject to the highest standards of corporate governance.

Because our funds typically own the equities of companies for long periods of time (and in the case of index funds are practically permanent holders of companies), we believe it is important to ensure that these companies' governance and executive compensation practices support the creation of long-term value for investors. Our advocacy on this front is driven by our governance and compensation principles, which are described in a related section. (See link below.) The most visible sign of Vanguard's advocacy is our funds' proxy voting at shareholder meetings. We have an experienced team of analysts that independently evaluates each proposal and casts our funds' votes in accordance with the funds' voting guidelines.

However, voting by its nature reduces sometimes complex issues to a binary choice – "for" or "against" a particular proposal – making it a rather blunt instrument. In contrast, our engagement with the directors and managers of the companies in which we invest provides us with the opportunity to target feedback and messaging more precisely than does voting alone. So while voting is visible, we think voting tells only part of the story.

We believe our active engagement demonstrates that passive investors don't need to be passive owners. In fact, our involvement in hundreds of direct discussions every year has taught us that we can accomplish as much – if not more – through dialogue than through voting alone. Through engagement, we're able to put issues on the table for discussion that aren't on the proxy ballot. In essence, we continually strive to provide constructive input that will, in our view, better position companies to deliver sustainable value over the long term for all investors.