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Policies and guidelines

Policy overview

At Vanguard, our core purpose is "to take a stand for all investors, to treat them fairly, and to give them the best chance for investment success." To guide us in this mission, we rely on our core values of integrity, focus, and stewardship in every decision we make. Vanguard’s ownership structure means integrity is foundational to our character as an organization—we have no conflicting loyalties, and we’re built to do the right thing for clients. Our long-term perspective and disciplined approach to investing puts our focus squarely on clients and the sustainable value of their investments. Our stewardship is reflected in a commitment to keep costs low and to protect our clients from undue risk. We believe responsible investment is inherently part of Vanguard’s culture and is consistent with our fiduciary duty to manage investments in the best interest of clients.

Vanguard supports responsible investment by:

  • Voting in support of proxy proposals that, in our view, will improve our clients’ long-term investing outcomes.
  • Advocating for responsible corporate governance, particularly with the companies in which we invest, as a driver of long-term value creation.
  • Acting on material environmental, social, and governance (ESG) opportunities or risks in our investments.

Proxy voting

The most visible sign of Vanguard’s engaged ownership is our funds’ proxy voting at shareholder meetings. We have an experienced group of analysts on our Investment Stewardship team that evaluates proposals and casts our funds’ votes in accordance with our voting guidelines. Our guidelines are designed to promote long-term shareholder value by supporting good corporate governance practices. They frame the analysis of each proxy proposal, providing a basis for decision-making. In evaluating votes, the Investment Stewardship team may consider information from many sources, including company management, shareholder groups, and various research and data resources. We periodically review our voting guidelines to consider further developments in governance standards or risks to long-term shareholder value.

Advocating through engagement

Our funds typically hold companies’ stock for long periods of time, and in the case of index funds, we are near-permanent investors. We believe good corporate governance is key to helping these companies maximize returns over time, and we view effective management of environmental and social risks as an integrated component of good corporate governance practices. Significant analysis and effort are put into discussions with the directors and managers of the companies in which we invest; the level and frequency of these discussions may be influenced by the material impact to our funds and the contentiousness of the issue. We believe these engagements, more so than voting, provide an opportunity to fully understand issues and target feedback and messaging to companies.

We characterize our approach as “quiet diplomacy focused on results”—providing constructive input that will, in our view, better position companies to deliver sustainable value over the long term for all investors.

We have a well-established process for identifying governance risks in our portfolio companies. Our key areas of focus for engagement include:

  • A well-composed, independent, capable, and experienced board.
  • Governance structures that empower shareholders.
  • Sensible compensation that incentivizes long-term performance.

Furthermore, Vanguard promotes good corporate governance and responsible investment through thoughtful participation in industry events and discussions where we can expand our advocacy and enhance our understanding of investment issues. We also engage with index providers to understand the methodology, construction, and maintenance of various equity indexes. Finally, we actively contribute to the development of regulatory policy with other market stakeholders to raise standards and promote best practices around the globe.

Acting on ESG opportunities and risks in our investments

Fixed Income Group

Our actively managed fixed income mandates are supported by a global team of credit analysts that develops independent risk assessments and investment opinions for each fixed income issuer. The team seeks to understand the material implications of ESG risk as part of an overall independent risk assessment and to determine whether or not market pricing adequately reflects those risks. Focus is placed on consistently applying an ESG integration framework to our investment decision-making process and working with issuers to better understand risks and how improvements can be made to address them.

Equity Investment Group

The majority of our global investments, including most of our equity mandates, seek to track an index. Index providers determine the benchmark constituents, which may not take into account ESG risk when selecting or retaining investments. Our global product lineup includes a number of funds designed to track indexes that exclude companies that do not meet social responsibility criteria specified by the index provider.

Portfolio Review

The Portfolio Review team is responsible for the ongoing oversight of our external managers, as many of our active funds use external advisors to manage investments. The team's manager search and oversight process focuses on understanding the drivers of investment performance and a firm's ability to sustain investment success over the long term. Multiple inputs are considered when assessing an investment manager, including the firm's culture, ethics, and stability; the skill and depth of the investment team; the investment philosophy and process; and the firm's ability to implement its investment process while managing risk effectively. The team engages with our external investment managers periodically to review their practices to better understand how ESG factors inform the investment process. Additionally, we retain documentation of each manager's responsible investment or ESG policy to help monitor improvements, developments, and changes over time.

Oversight and disclosure

The integration of ESG in Vanguard's investment and engaged ownership practices is currently overseen by the Investment Stewardship Oversight Committee, which consists of our Chief Executive Officer and select senior officers of Vanguard. Day-to-day management of ESG integration is supported by a cross-functional team representing those groups that regularly evaluate and address environmental, social, and governance risks across our product lineup.

Ongoing review of policies and practices

We will continue to adapt and evolve our approach to responsible investment as we uncover new risks and issues affecting our investments. Our policy, and other departmental guidelines and practices, will be revisited on a regular basis. Any updates will be disclosed on Vanguard's external website and through other relevant channels.

Our governance and executive compensation principles

Vanguard's duty to fund shareholders is to maximize the long-term value of the investments held by our funds. Consistent with that responsibility, we advocate effective policies regarding governance and executive compensation by the companies in which our funds invest. Our advocacy on these issues is an important way to enhance shareholder value.

Our views on corporate governance

The principles detailed below serve as the foundation for the guidelines we use to vote proxies on behalf of our funds. Importantly, they also represent a framework to shape our future discussions with portfolio companies on governance matters.

Independent oversight

We believe that a substantial majority of the board should be entirely independent of management. In those cases where the board chair is not independent, we believe that it is important for there to be an element of independent leadership on the board, in the form of a lead or presiding director. This director should ensure an appropriate balance between the powers of the CEO and those of the other independent directors, and should meet regularly with the independent directors without the CEO present.

Accountability

Corporate governance is, at its core, about the relationship among a company's owners (shareholders), managers, and directors. Ensuring that management is accountable to the board, and the board to shareholders, is an important incentive in the creation of value. To this end, among other things, directors should be subject to annual elections by majority vote and executive managers should see a substantial link between their compensation and company performance.

Engagement

We believe that it is important for company officials to communicate regularly with shareholders regarding areas of interest or concern. In addition, shareholders should be provided with channels through which they may communicate with the board. While boards get shareholder "feedback" through the proxy voting process, a "yes/no" vote provides only limited insight into shareholder views. We have found, through hundreds of meetings and discussions annually, that we can often accomplish more through dialogue than through the ballot.

Sensible compensation tied to performance

We believe that the majority of executive pay should depend on the creation of long-term shareholder value. An independent compensation committee should have sufficient latitude to structure pay arrangements that reward both long- and short-term achievements, but always with the focus on creating sustainable value. We value stock ownership and retention requirements because they reinforce executives' "shareholder" mindset. Executive pay, no matter how it is designed to reward performance, should always be reasonable on an absolute basis and should not unduly dilute public shareholders' interests. With respect to severance, we believe executives should be paid well when they perform well, not when they're asked to leave. Finally, companies' required disclosures of their pay practices are more useful and create more accountability if they focus as much on "why" as they do on "how much."

Shareholder voting rights consistent with economic interests

We believe that shareholders' say in important matters should be proportional to their ownership interest in a company. A simple majority of shares outstanding should be sufficient to approve virtually any matter subject to shareholder approval. Companies should not create classes of stock that disproportionately give one class more votes per share than the common share class.

Minimal anti-takeover devices and annual director elections

We believe that shareholder value is generally maximized when the market for corporate control is permitted to function freely. Classified boards, poison pills, and other takeover defenses, particularly in combination with one another, are generally at odds with this perspective. While we appreciate that these measures may enhance the board's negotiating leverage in certain instances, we are concerned with their potential to reduce board accountability. Accordingly, we believe that these provisions should be minimized, and to the extent they are used—particularly poison pills—they should be subject to shareholder approval.

Our views on executive compensation

Sound compensation policies and practices are fundamental drivers of sustainable, long-term performance for shareholders. While we do not want to determine the policies of the companies in which we invest—a decision appropriately left to their boards and managements—we believe that the following principles are critical in linking compensation and shareowner value.

Pay for performance

Compensation should incent and reward the creation of value for the company's stakeholders. As such, we believe that a substantial portion of executive compensation should be tied to relevant financial and/or operational outcomes that (a) reflect the decisions and effort of those being compensated, and (b) contribute to the creation of value over the long term. Accordingly, incentives should be structured to reward relative outperformance, as opposed to a general rise in stock prices or other market-wide trends, over the course of a business or product cycle that is relevant to the company. (In the event that a company's financial results are subsequently restated, excess awards to individuals should be reclaimed by the company.) While compensation should ultimately reward long-term performance, incentives for shorter term (i.e., annual) performance objectives may be appropriate to the extent that the incentives support sustainable value creation.

Pay within reason

Compensation levels and performance targets should be sensible within the context of a company's peer group, taking into account differences in company size and complexity, as well as performance. While comparative pay data may factor into the pay-setting process, the board should rationalize the selection of peer companies based on relevant business metrics, particularly when including firms in other industries.

Listen

We believe that it is important for board members and company officials to regularly seek input from shareholders regarding compensation. To that end, annual advisory votes provide shareholders with a consistent channel through which to provide directional input on compensation decisions. In addition to these “Say on Pay” votes, we will provide feedback to boards regarding the alignment between compensation and shareholder value creation through our votes on directors and equity compensation plan proposals. In many cases, we will supplement our voting with direct discussions to provide company officials with relevant and specific feedback regarding compensation programs.

Comply and communicate

While policies and practices will justifiably vary from firm to firm, each company should have a clearly articulated compensation philosophy that serves as the foundation for all of its pay programs and decisions. Disclosures should make clear the board's decision-making process, from the selection of peer groups and performance targets, through performance assessment and award determination. Communicating the rationale for decisions in addition to their outcomes will better enable shareholders to critically assess the board's process and approach as stewards of shareholders' assets.

Encourage stock ownership

We value stock ownership and retention requirements because we believe that they reinforce executives’ “shareholder” mindset. Executives should be expected to maintain a substantial ownership interest for the duration of their employment. Companies should also impose holding-period requirements on shares acquired through option exercise. While we support the use of equity-based compensation as a means to align the interests of employees and other owners, such arrangements should not unduly dilute the value of stock held by public shareholders.

Minimize guarantees

We believe that, in general, senior executives should be engaged without employment contracts that guarantee certain salary or “bonus” payments, or that provide substantial severance payments upon termination (absent a change in control). Such “pay for pulse” or, even worse, “pay for failure” arrangements are at odds with the pay-for-performance philosophy we support. While we do not object to typical change-in-control arrangements, such payments should always be “double trigger” in nature.

Lead by example

Director compensation should be reasonably structured to reward the efforts of directors without compromising the independence necessary to protect shareholders' long-term interests. We believe that payment of a significant portion of directors' fees in stock that must be held for the duration of the director's service establishes alignment with the interests of other shareholders. In addition, those directors serving on key committees should have no relationship with the company outside their service as a director.

Contact us at InvestmentStewardship@vanguard.com

Environmental and social matters

Vanguard understands that people have a wide variety of deeply felt humanitarian, ethical, environmental, and social concerns, and that some may want to see their beliefs reflected in their investments. As a fiduciary, Vanguard is required to manage our funds in the best interests of shareholders and obligated to maximize returns in order to help shareholders meet their financial goals.

The Investment Stewardship team actively engages with portfolio companies and their boards to discuss material risks, ranging from business and operational risks to environmental and social risks. We also evaluate proposals from shareholders and may support a specific proposal when we believe there is a logically demonstrable linkage between that proposal and a company's long-term shareholder value.

We have also established a formal procedure to identify and monitor portfolio companies whose direct involvement in crimes against humanity or patterns of egregious abuses of human rights would warrant engagement or potential divestment. While ultimately our judgment on these issues and actions with respect to specific companies may differ from that of special interest groups and other institutions, we believe our approach strikes the appropriate balance between corporate responsibility and our fiduciary obligations.

Like other investment management firms, Vanguard understands that some individuals choose investments based exclusively on social matters and personal beliefs. For such investors, we have offered Vanguard FTSE Social Index Fund since 2000. This low-cost, broadly diversified fund seeks to track a benchmark that screens companies on social, human rights, and environmental criteria.

Vanguard’s proxy voting guidelines

The Board of Trustees (the Board) of each Vanguard fund has adopted proxy voting procedures and guidelines to govern proxy voting by the fund. The Board has delegated oversight of proxy voting to the Investment Stewardship Oversight Committee (the Committee), made up of senior officers of Vanguard and subject to the procedures and guidelines described below. The Committee reports directly to the Board. Vanguard is subject to these procedures and guidelines to the extent that they call for Vanguard to administer the voting process and implement the resulting voting decisions, and for these purposes the guidelines have also been approved by the Board of Directors of Vanguard.

The overarching objective in voting is simple: to support proposals and director nominees that maximize the value of a fund’s investments—and those of fund shareholders—over the long term. Although the goal is simple, the proposals the funds receive are varied and frequently complex. As such, the guidelines adopted by the Board provide a rigorous framework for assessing each proposal. Under the guidelines, each proposal must be evaluated on its merits, based on the particular facts and circumstances as presented.

For ease of reference, the procedures and guidelines often refer to all funds. However, our processes and practices seek to ensure that proxy voting decisions are suitable for individual funds. For most proxy proposals, particularly those involving corporate governance, the evaluation will result in the same position being taken across all of the funds and the funds voting as a block. In some cases, however, a fund may vote differently, depending upon the nature and objective of the fund, the composition of its portfolio, and other factors.

The guidelines do not permit the Board to delegate voting responsibility to a third party that does not serve as a fiduciary for the funds. Because many factors bear on each decision, the guidelines incorporate factors the Committee should consider in each voting decision. A fund may refrain from voting some or all of its shares if doing so would be in the fund's and its shareholders’ best interests. These circumstances may arise, for example, if the expected cost of voting exceeds the expected benefits of voting, if exercising the vote would result in the imposition of trading or other restrictions, or if a fund (or all Vanguard-advised funds in the aggregate) were to own more than a maximum percentage of a company's stock (as determined by the company's governing documents).

In evaluating proxy proposals, we consider information from many sources, including but not limited to, the investment advisor for the fund, the management or shareholders of a company presenting a proposal, and independent proxy research services. We will give substantial weight to the recommendations of the company’s board, absent guidelines or other specific facts that would support a vote against management. In all cases, however, the ultimate decision rests with the members of the Committee, who are accountable to the fund’s Board.

While serving as a framework, the following guidelines cannot contemplate all possible proposals with which a fund may be presented. In the absence of a specific guideline for a particular proposal (e.g., in the case of a transactional issue or contested proxy), the Committee will evaluate the issue and cast the fund’s vote in a manner that, in the Committee’s view, will maximize the value of the fund's investment, subject to the individual circumstances of the fund.

I. The Board of Directors

A. Election of directors

Good governance starts with a majority-independent board, whose key committees are composed entirely of independent directors. As such, companies should attest to the independence of directors who serve on the Compensation, Nominating, and Audit committees. In any instance in which a director is not categorically independent, the basis for the independence determination should be clearly explained in the proxy statement.

While the funds will generally support the board's nominees, we will consider a company's specific circumstances in the context of relevant exchange rules and local governance codes, where applicable, in determining the fund's vote. The following factors will be taken into account in determining each fund's vote:

Factors for approval

  • Nominated slate results in board composed of a majority of independent directors.
  • All members of Audit, Nominating, and Compensation committees are independent of management.

Factors against approval

  • Nominated slate results in board composed of a majority of nonindependent directors.
  • Audit, Nominating, and/or Compensation committees include nonindependent members.
  • Incumbent board member failed to attend at least 75% of meetings in the previous year.
  • Actions of committee(s) on which nominee serves are inconsistent with other guidelines (e.g., excessive equity grants, substantial nonaudit fees, lack of board independence).
  • Actions of committee(s) on which nominee serves demonstrate serious failures of governance (e.g., unilaterally acting to significantly reduce shareholder rights, failure to respond to previous vote results for directors and shareholder proposals).

B. Contested director elections

In the case of contested board elections, we will evaluate the nominees’ qualifications, the performance of the incumbent board, and the rationale behind the dissidents’ campaign, to determine the outcome that we believe will maximize shareholder value.

C. Classified boards

The funds will generally support proposals to declassify existing boards (whether proposed by management or shareholders), and will block efforts by companies to adopt classified board structures in which only part of the board is elected each year.

D. Proxy access

We believe that long-term investors may benefit from having proxy access, or the opportunity to place director nominees on a company's proxy ballot. In our view, this improves shareholders' ability to participate in director elections while potentially enhancing boards' accountability and responsiveness to shareholders.

That said, we also believe that proxy access provisions should be appropriately limited to avoid abuse by investors who lack a meaningful long-term interest in the company. As such, we generally believe that a shareholder or group of shareholders representing 3% of a company's outstanding shares held for at least three years should be able to nominate directors for up to 20% of the seats on the board.

We will review proposals regarding proxy access case by case. The funds will be most likely to support access provisions with the terms described above, but they may support different thresholds based on a company's other governance provisions, as well as other relevant factors.

II. Approval of independent auditors

The relationship between the company and its auditors should be limited primarily to the audit, although it may include certain closely related activities that do not, in the aggregate, raise any appearance of impaired independence. The funds will generally support management's recommendation for the ratification of the auditor, except in instances where audit and audit-related fees make up less than 50% of the total fees paid by the company to the audit firm. We will evaluate on a case-by-case basis instances in which the audit firm has a substantial nonaudit relationship with the company (regardless of its size relative to the audit fee) to determine whether independence has been compromised.

III. Compensation issues

A. Stock-based compensation plans

Appropriately designed stock-based compensation plans, administered by an independent committee of the board and approved by shareholders, can be an effective way to align the interests of long-term shareholders with the interests of management, employees, and directors. The funds oppose plans that substantially dilute their ownership interest in the company, provide participants with excessive awards, or have inherently objectionable structural features.

An independent compensation committee should have significant latitude to deliver varied compensation to motivate the company’s employees. However, we will evaluate compensation proposals in the context of several factors (a company’s industry, market capitalization, competitors for talent, etc.) to determine whether a particular plan or proposal balances the perspectives of employees and the company’s other shareholders. We will evaluate each proposal on a case-by-case basis, taking all material facts and circumstances into account.

The following factors will be among those considered in evaluating these proposals:

Factors for approval

  • Company requires senior executives to hold a minimum amount of company stock (frequently expressed as a multiple of salary).
  • Company requires stock acquired through equity awards to be held for a certain period of time.
  • Compensation program includes performance-vesting awards, indexed options, or other performance-linked grants.
  • Concentration of equity grants to senior executives is limited (indicating that the plan is very broad-based).
  • Stock-based compensation is clearly used as a substitute for cash in delivering market-competitive total pay.

Factors against approval

  • Total potential dilution (including all stock-based plans) exceeds 15% of shares outstanding.
  • Annual equity grants have exceeded 2% of shares outstanding.
  • Plan permits repricing or replacement of options without shareholder approval.
  • Plan provides for the issuance of reload options.
  • Plan contains automatic share replenishment (“evergreen”) feature.

B. Bonus plans

Bonus plans, which must be periodically submitted for shareholder approval to qualify for deductibility under Section 162(m) of the Internal Revenue Code, should have clearly defined performance criteria and maximum awards expressed in dollars. Bonus plans with awards that are excessive in both absolute terms and relative to a comparative group generally will not be supported.

C. Employee stock purchase plans

The funds will generally support the use of employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value and that shares reserved under the plan constitute less than 5% of the outstanding shares.

D. Advisory votes on executive compensation (Say on Pay)

In addition to proposals on specific equity or bonus plans, the funds are required to cast advisory votes approving many companies’ overall executive compensation plans (so-called Say on Pay votes). In evaluating these proposals, we consider a number of factors, including the amount of compensation that is at risk, the amount of equity-based compensation that is linked to the company’s performance, and the level of compensation as compared to industry peers. The funds will generally support pay programs that demonstrate effective linkage between pay and performance over time and that provide compensation opportunities that are competitive relative to industry peers. On the other hand, pay programs in which significant compensation is guaranteed or insufficiently linked to performance will be less likely to earn our support.

E. Executive severance agreements (“golden parachutes”)

Although executives’ incentives for continued employment should be more significant than severance benefits, there are instances, particularly in the event of a change in control, in which severance arrangements may be appropriate. Severance benefits payable upon a change of control AND an executive’s termination (so-called double-trigger plans) are generally acceptable to the extent that benefits paid do not exceed three times salary and bonus. Arrangements in which the benefits exceed three times salary and bonus should be justified and submitted for shareholder approval. We do not generally support guaranteed severance absent a change in control or arrangements that do not require the termination of the executive (so-called single-trigger plans).

IV. Corporate structure and shareholder rights

The exercise of shareholder rights, in proportion to economic ownership, is a fundamental privilege of stock ownership that should not be unnecessarily limited. Such limits may be placed on shareholders’ ability to act by corporate charter or bylaw provisions, or by the adoption of certain takeover provisions. In general, the market for corporate control should be allowed to function without undue interference from these artificial barriers.

The funds’ positions on a number of the most commonly presented issues in this area are as follows:

A. Shareholder rights plans (“poison pills”)

A company’s adoption of a so-called poison pill effectively limits a potential acquirer’s ability to buy a controlling interest without the approval of the target’s board of directors. Such a plan, in conjunction with other takeover defenses, may serve to entrench incumbent management and directors. However, in other cases, a poison pill may force a suitor to negotiate with the board and result in the payment of a higher acquisition premium.

In general, shareholders should be afforded the opportunity to approve shareholder rights plans within a year of their adoption. This provides the board with the ability to put a poison pill in place for legitimate defensive purposes, subject to subsequent approval by shareholders. In evaluating the approval of proposed shareholder rights plans, we will consider the following factors:

Factors for approval

  • Plan is relatively short-term (3–5 years).
  • Plan requires shareholder approval for renewal.
  • Plan incorporates review by a committee of independent directors at least every three years (so-called TIDE provisions).
  • Plan includes permitted bid/qualified offer feature (“chewable pill”) that mandates shareholder vote in certain situations.
  • Ownership trigger is reasonable (15–20%).
  • Highly independent, nonclassified board.

Factors against approval

  • Plan is long-term (>5 years).
  • Renewal of plan is automatic or does not require shareholder approval.
  • Ownership trigger is less than 15%.
  • Classified board.
  • Board with limited independence.

B. Increase in authorized shares

The funds are supportive of companies seeking to increase authorized share amounts that do not potentially expose shareholders to excessive dilution. We will generally approve increases of up to 50% of the current share authorization, but will also consider a company's specific circumstances and market practices.

C. Cumulative voting

The funds are generally opposed to cumulative voting under the premise that it allows shareholders a voice in director elections that is disproportionate to their economic investment in the corporation.

D. Supermajority vote requirements

The funds support shareholders’ ability to approve or reject matters presented for a vote based on a simple majority. Accordingly, the funds will support proposals to remove supermajority requirements and oppose proposals to impose them.

E. Right to call meetings and act by written consent

The funds support shareholders’ right to call special meetings of the board (for good cause and with ample representation) and to act by written consent. The funds will generally vote for proposals to grant these rights to shareholders and against proposals to abridge them.

F. Confidential voting

The integrity of the voting process is enhanced substantially when shareholders (both institutions and individuals) can vote without fear of coercion or retribution based on their votes. As such, the funds support proposals to provide confidential voting.

G. Dual classes of stock

We are opposed to dual-class capitalization structures that provide disparate voting rights to different groups of shareholders with similar economic investments. We will oppose the creation of separate classes with different voting rights and will support the dissolution of such classes.

V. Environmental and social proposals

Proposals in this category, initiated primarily by shareholders, typically request that a company enhance its disclosure or amend certain business practices. The funds will evaluate these resolutions in the context of our view that a company's board has ultimate responsibility for providing effective ongoing oversight of relevant sector- and company-specific risks, including those related to environmental and social matters. The funds will evaluate each proposal on its merits and may support those where we believe there is a logically demonstrable linkage between the specific proposal and long-term shareholder value of the company. Some of the factors considered when evaluating these proposals include the materiality of the issue, the quality of current disclosures/business practices, and any progress by the company toward the adoption of best practices and/or industry norms.

VI. Voting in markets outside the United States

Corporate governance standards, disclosure requirements, and voting mechanics vary greatly among the markets outside the United States in which the funds may invest. Each fund's votes will be used, where applicable, to advocate for improvements in governance and disclosure by each fund's portfolio companies. We will evaluate issues presented to shareholders for each fund's foreign holdings in context with the guidelines described above, as well as local market standards and best practices. The funds will cast their votes in a manner believed to be philosophically consistent with these guidelines, while taking into account differing practices by market. In addition, there may be instances in which the funds elect not to vote, as described below.

Many other markets require that securities be “blocked” or reregistered to vote at a company's meeting. Absent an issue of compelling economic importance, we will generally not subject the fund to the loss of liquidity imposed by these requirements.

The costs of voting (e.g., custodian fees, vote agency fees) in other markets may be substantially higher than for U.S. holdings. As such, the fund may limit its voting on these holdings in instances where the issues presented are unlikely to have a material impact on shareholder value.

VII. Voting shares of a company that has an ownership limitation

Certain companies have provisions in their governing documents that restrict stock ownership in excess of a specified limit. The ownership limit may be applied at the individual fund level or across all Vanguard-advised funds. Typically, these ownership restrictions are included in the governing documents of real estate investment trusts, but may be included in other companies' governing documents.

A company’s governing documents normally allow the company to grant a waiver of these ownership limits, which allows a fund (or all Vanguard-advised funds) to exceed the stated ownership limit. Sometimes the company will grant a waiver without restriction. From time to time, a company may grant a waiver only if a fund (or funds) agrees to not vote the company's shares in excess of the normal specified limit. In such a circumstance, a fund may refrain from voting shares if owning the shares beyond the company's specified limit is in the best interests of the fund and its shareholders.

VIII. Voting on a fund's holdings of other Vanguard funds

Certain Vanguard funds (“owner funds”) may, from time to time, own shares of other Vanguard funds (“underlying funds”). If an underlying fund submits a matter to a vote of its shareholders, votes for and against such matters on behalf of the owner funds will be cast in the same proportion as the votes of the other shareholders in the underlying fund.

IX. Investment Stewardship team

The Board has delegated the day-to-day operations of the funds' proxy voting process to the Investment Stewardship team, which the Committee oversees. Although most votes will be determined subject to the individual circumstances of each fund and by reference to the guidelines as separately adopted by each of the funds, there may be circumstances when the Investment Stewardship team will refer proxy issues to the Committee for consideration. In addition, the Board has the authority to vote proxies only when, in the Board's or the Committee's discretion, such action is warranted.

The Investment Stewardship team performs the following functions: (1) managing proxy voting vendors; (2) reconciling share positions; (3) analyzing proxy proposals using factors described in the guidelines; (4) determining and addressing potential or actual conflicts of interest that may be presented by a particular proxy; and (5) voting proxies. The Investment Stewardship team also prepares periodic and special reports to the Board and any proposed amendments to the procedures and guidelines.

X. Investment Stewardship Oversight Committee

The Board, including a majority of the independent trustees, appoints the members of the Committee who are senior officers of Vanguard.

The Committee does not include anyone whose primary duties include external client relationship management or sales. This clear separation between the proxy voting and client relationship functions is intended to eliminate any potential conflict of interest in the proxy voting process. In the unlikely event that a member of the Committee believes he or she might have a conflict of interest regarding a proxy vote, that member must recuse himself or herself from the committee meeting at which the matter is addressed and not participate in the voting decision.

The Committee works with the Investment Stewardship team to provide reports and other guidance to the Board regarding proxy voting by the funds. The Committee has an obligation to conduct its meetings and exercise its decision-making authority subject to the fiduciary standards of good faith, fairness, and Vanguard’s Code of Ethics. The Committee shall authorize proxy votes that the Committee determines, at its sole discretion, to be in the best interests of each fund's shareholders. In determining how to apply the guidelines to a particular factual situation, the Committee may not take into account any interest that would conflict with the interest of fund shareholders in maximizing the value of their investments.

The Board may review these procedures and guidelines and modify them from time to time.

To obtain a free copy of a report that details how the funds voted the proxies relating to portfolio securities held by the funds for the prior 12-month period ended June 30, log on to vanguard.com or visit the SEC's website at sec.gov.