Shareholders voted only 15.2 percent of Yahoo shares in favor of this proposal at the company's annual shareholders' meeting on Tuesday, which also included the rejection of a proposal to tie executive pay to company performance. The meeting also featured tense exchanges between Chairman and CEO Terry Semel and shareholders critical of his job and of the company's financial performance.

Yahoo's management had recommended that shareholders vote against the anticensorship proposal, which was presented by the New York City Comptroller's Office on behalf of the New York City Pension Funds.

The organization, which owned about US$124 million in Yahoo shares as of last Friday, also saw a similar proposal defeated last month at Google's shareholders meeting.

Yahoo, Google and other Internet companies are under pressure by shareholders and human rights groups to resist demands from governments to censor search-engine results that these governments find politically objectionable.

Critics also want Internet companies to refuse governments' requests to turn over members' information when the intention behind those requests is to persecute otherwise law-abiding journalists and dissidents.

The defeated proposal would have required Yahoo to implement a series of policies, such as not hosting individuals' data in countries where political dissent is considered a crime.

The proposal also called for Yahoo to not engage in self-censorship and to use all legal means to resist censorship demands, complying with them only if legally bound to do so.

In recommending shareholders vote "no," Yahoo said in the meeting's proxy statement that the proposal would give the company "insufficient flexibility" to respond to legal requirements in the countries where it operates.

Yahoo also said it shares many of the proposals' concerns and objectives, but that its presence is a positive force toward reform in countries where speech and press freedom is limited.

The company believes that there is only so much pressure that the private sector can apply to foreign governments, and that it's more powerful to establish bilateral and multilateral dialogues about political and human rights issues to bring about change.

Yahoo also listed in the proxy statement a series of steps it is taking to address Internet freedom problems, including participating in policy discussions with private sector peers, governments, universities and other organizations.

Yahoo has also created a team made up of Yahoo employees to coordinate and support Yahoo's efforts at addressing privacy and free expression issues.