Tracing the Historical Roots of Employee Stock Ownership

Louis Kelso and the Creation of the First ESOP Law

When I first began researching employee ownership, I assumed it was a new concept, since I had never heard of it before. However, I soon discovered that employee ownership has deep historical roots. This piqued my curiosity about its origins and development. Let's dive into the history of Employee Stock Ownership Plans (ESOPs), the main vehicle for broad-based ownership in the United States.

About Louis O. Kelso

Louis Kelso, often referred to as the father of the ESOP, was an American economist and lawyer. Kelso authored several influential books that laid out his ideas on employee ownership. In them, he expressed a deep interest in economic theories and wealth distribution, believing that traditional capitalist systems, where capital ownership was concentrated in the hands of a few, were inherently flawed. Kelso aimed to democratize capital ownership, ensuring that employees could share in the wealth they helped generate. 

In 1956, Kelso engineered the first ESOP for Peninsula Newspapers, Inc., a newspaper company based in California. This groundbreaking plan allowed employees to buy shares in their company, setting the stage for the widespread adoption of ESOPs in the United States.  

A still shot from another interview with Louis Kelso in 1983

Some of Kelso’s notable works

• “The Capital Manifesto” (1958)

• “The New Capitalist: A Proposal to Free Economic Growth from the Slavery of Savings” (1961)

• “Democracy and Economic Power: Extending the ESOP Revolution” (1986) 

• “The Kelso Solution: How to Provide Every Working Man and Woman in America with a Second Income” (1975) 

The Establishment of ESOP Legislation

Following Louis Kelso’s groundbreaking work, a significant turning point occurred in 1974 with the enactment of the Employee Retirement Income Security Act (ERISA) in the United States. This legislation provided a legal framework for ESOPs, laying the groundwork for their widespread adoption. ERISA not only established clear guidelines for implementation but also played a crucial role in popularizing the concept.

Throughout the 1980s, ESOPs experienced a surge in the United States. According to data from the Federal Reserve Bank of New York, the number of ESOP plans soared, reaching 4,925 by 1980, covering approximately 5.3 million workers. As ESOPs continue to evolve and proliferate, their enduring significance highlights the great potential of employee ownership in fostering economic empowerment and shared prosperity.

Check This Out!

• Mike Wallace interviews Louis Kelso on 60 Minutes—in 1975!

• Read more writings by and about Louis Kelso’s on The Kelso Institute’s website