Kelso was a true revolutionary in finance and ownership education. He was the inventor of the employee stock ownership plan. We at NFTE had two such experiments — one in Newark with Jersey Mike’s and one in the South Bronx with NFTE Solutions.
I already knew I would never forget him. Myself and 11 NFTE graduates from Newark had been waiting patiently for Louis Kelso at the Grand Hyatt in San Francisco. The lobby bright and clean was like a foreign country to us. And I was delighted to be meeting a legend in finance. It was 1989 and we were one of the last people to see him, his face marked by pain. He had insisted on keeping the meeting, despite his agony.
But what had brought us to meet this pro-capitalist revolutionary?
When I first founded the Network for Teaching Entrepreneurship, part of the vision was that the top minds in the world in private equity would help bring ownership opportunities to low income youth. The strategy was for educators to take over companies by using Employee Stock Ownership Plans, enabling a majority of the ownership to go into a trust for the people working there as well as providing seed capital for those that wanted to leave and start businesses. Ray Chambers had been one of the pioneers of ESOPs, using them in some of Wesray’s deals like Avis and Gibson greeting cards.
On November 22, 1987, in my first meeting with Ray Chambers, he began to teach me about the power of leveraging capital. And I was excited.
He made it clear and simple, and my head began to spin. After a year of tutoring in his small office at 330 South Street in Morristown, Ray said: “Go meet Kelso himself. Learn the finer points and then we can try and create something of value by buying a major business that can be run and owned by young people.”
Soon I was ready. Kelso was a true revolutionary in finance and ownership education. He was the inventor of the employee stock ownership plan. The concept began in 1956 in Fairbanks, Alaska when the owners of the local paper wanted to retire and decided to sell the paper to their employees.
His book, The Capitalist Manifesto, published by Random House is a classic and should be read by anyone in economic development.
Kelso’s essential argument is that someone who is born without capital — capital can be defined in a wide variety of ways, such as money, reputation, knowledge, people, skills, I/P — essentially anything of value — should not be denied a chance for ownership of the means of production. The process of an ESOP is it that a worker without capital gets stock and becomes an owner. Legally there becomes a pool of stock that is held in a separate corporation which is available to the worker when he or she leaves the company. Combined with the concept of leverage they become a tool for great creation of wealth and a method for changing ownership.
The vision was created by Kelso that employees could actually own their companies. Kelso learned about the idea as a young lawyer and wrote an important book called The Capitalist Manifesto. It took almost a decades for the idea to take form .
My heart pounded as we walked into the Hyatt in San Francisco, and found a place to meet for the 12 of us. The kids each had three questions, so the meeting went on for over six hours. The question that most intriqued me was by Tamara Kelly, who asked: “How do government workers participate in ESOP plans?” Twenty-five years later, this issu e— of helping incentivize workers who work for the governments of the world — is still before us unresolved.
I was impressed by Kelso and returned to Newark with our kids determined to integrate an ownership plan for the students/workers into the restaurant we were planning to open in downtown Newark.
We at NFTE had two such experiments — one in Newark with Jersey Mike’s and one in the South Bronx with NFTE Solutions. In both cases we used profit sharing to get close to this idea that the workers should own part of the company. We were never able to figure out how to effectively share actual ownership in a firm run by youth. We pioneered in ways that the intellectual property could be protected within the company. Our classroom methods are used all over the world.
Some day a genius will come along and figure out how everyone can benefit from the power of markets. And that will be the greatest revolution of all time.
I am certain the future for global business will include many opportunities to explore how workers can own part of the companies where they work.