Japan is considering introducing a system that enables publicly traded and other stock companies to identify de facto shareholders who do not appear in shareholder lists but who effectively exercise voting rights.

The system will be included in a draft revision to the companies law being discussed by the Legislative Council, which advises the justice minister.

Specifically, the council is likely to approve the idea of giving companies the right to demand that the shareholders through whom de facto holders exercise their influence disclose information on them.

The system is aimed at promoting dialogue between corporations and shareholders at a time when activist investors within and outside Japan exert increasing sway over listed companies.

De facto shareholders, known as beneficial shareholders, do not appear in shareholder lists compiled by companies but effectively hold shares in companies through trust banks and exercise voting rights. The lists display only the names of trust banks and other nominal shareholders, making it difficult for companies to identify their de facto owners.

Although shareholders are required to submit a large-volume shareholding report if they own more than 5% of the shares of a listed company, it is difficult for companies to identify those who hold less than 5%, leading to the risk that many shares could be bought without their knowledge.

The Financial Services Agency is also considering measures to help companies identify de facto shareholders, such as a revision of its action guidelines for institutional investors to urge them to provide explanations on such holders to companies upon request. But it is unclear how effective that would be, as it would not be a legal requirement.

The Legislative Council is expected to discuss a plan to enable companies to request information from trust banks and other shareholders on their shareholder lists. There is also a plan to ensure the system's effectiveness by imposing an administrative fine or restricting voting rights if they do not meet disclosure requests.

A system to identify beneficial shareholders "would not work well unless there is a legal obligation," said Yuichi Ikeda, senior executive managing director at Daiwa Institute of Research. "I hope this will be an opportunity to promote dialogue, including by allowing companies to give explanations to shareholders who exercise their de facto voting rights."