Yahoo Inc. shareholders voted down a proposal that would have forced management to adopt stronger policies regarding government attempts to limit Internet access and to curtail freedom of speech in countries where Yahoo operates.

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 Inc.'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.

Because it has taken what it considers sufficient steps to address censorship and civil liberties issues, Yahoo's board of directors also recommended voting against a related proposal.

That proposal, made by an individual shareholder, sought to amend Yahoo's corporate bylaws to establish a board committee on human rights authorized to review the human rights implications of company policies. Only 4.1 percent of shares were voted in its favor.

Shareholders also rejected a proposal by the Washington, D.C.-based United Brotherhood of Carpenters Pension Fund to establish a pay-for-superior-performance standard in the company's executive compensation plan for senior executives. The proposal called for linking the level of senior executive pay to the company's performance relative to other companies in its sector. Almost 35 percent of the shares were voted in favor of the proposal, and 62.3 percent against it.

Yahoo's board opposed the proposal, saying that although it believes a link must exist between executive pay and company performance, the board needs the flexibility of weighing other considerations as well.

This has been an issue at Yahoo, which has had generally underwhelming financial performance in the past two years, particularly when contrasted with Google's stellar revenue growth and profitability.

Semel has gotten most of the blame, as Yahoo has failed to capitalize on the fast-growing market of search advertising, the engine of Google's financial success.

Semel has also been faulted for failing to acquire hot Internet startups that ended up getting scooped up by rivals, as was the case with News Corp.'s acquisition of MySpace and Google's purchase of YouTube.

At Tuesday's meeting, some shareholders pelted Semel with blunt questions and in-your-face criticism, which lead to some tense exchanges.

A shareholder said he had been disappointed that Semel hadn't apologized to shareholders for the company's financial performance.

"Do you still have the fire in the belly to do this job?" the man asked Semel.

"Absolutely. Yahoo has more opportunities going forward than perhaps any other time in its history," Semel replied, as he began to answer the shareholder's questions.

The two sparred a bit later, when, after hearing Semel's answers, the shareholder asked the CEO: "Are you saying you're happy being a stronger number two than being number one in search?"

"I don't think I said that at all and I think you're being a little cute about that," Semel retorted.

After Semel and co-founder Jerry Yang addressed another of his questions, the shareholder shot back at Semel, saying: "I wasn't trying to be cute. I'm a shareholder. I love this company. ... I have some simple questions. If I didn't love this company, I'd sell my shares and show up next year" at the Google shareholders' meeting instead.

Semel then thanked him for his commitment to the company. "I take your questions as being constructive. I think when you began it was a little hard to judge that," Semel said.

IDG News Service

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