Loyal3: Twist a Concept & Trademark It

The CSOP was the brainchild of Louis Kelso, the inventor of the Employee Stock Ownership Plan (ESOP). The financial instrument was first used in 1958 to complete the buyout of Valley Nitrogen Producers by farmers located in the Central Valley of California. Today, Kelso's ESOP provides the mechanics, structure, and means of finance so employees can own the firms where they work. Kelso’s CSOP expands the concept of stakeholder ownership to include a firm's customers.

Because Louis Kelso was a lawyer-economist, he originally used the economics-friendly term "consumer." In more a more contemporary and non-academic fashion, also recognizing the broadly negative connotation associated with "consumer-ism," those who communicate about the CSOP today have used "consumer" and "customer" synonymously.

But the term “CSOP” has recently been co-opted by a company called Loyal3 in a way that I believe would be the antithesis of what Louis Kelso envisioned. Believe it or not, the company claims it created the CSOP -- and has even taken steps to trademark the term, despite the fact that it’s been in use for decades!

The CSOP vernacular is the cornerstone of Loyal3’s business plan, which has been afforded enormous publicity of late. (See Selling Stock Through Social Media and Nasdaq Social Partner Was Called on the Carpet.) I see it as glaring misuse of the term.

Loyal3 is marketing company stock through social media using public stock exchanges. Here’s how it works: Loyal3 is selling its platform to public companies. If you "Like" a particular company, you can go to its Website or its Facebook page and purchase stock as an individual investor. Loyal3 represents itself as a clearing agent of sorts.

This was not the vision Louis Kelso -- a political economist, corporate and financial lawyer, author, lecturer, and merchant banker -- had for the CSOP.

Because the ESOP and the CSOP could facilitate stock ownership transactions through an internal market, public stock exchanges were unnecessary. The traditional banking marketplace could issue debt for purchasing company shares, and the obligation was secured by future earnings. Thus capital could be made more readily available, and at a lower cost, with favorable tax treatment designed to offset internal set-up and maintenance cost. Stockholders, because they were owners, would directly benefit from this and any other bottom-line improvement. So co-opting of the term CSOP so that it can only be used in conjunction with a public exchange transaction, where investors do not have a direct relationship with profits, fully distorts the initial idea.

While the ESOP was granted special tax benefits in 1974, the CSOP was never granted permanent tax-advantaged status. Nevertheless, both the ESOP and the CSOP forwarded the cause of stakeholder ownership, moving it forward from the domain of the cooperative, where the demands of direct democracy were often a recipe for failure. The CSOP brought with it the ethic of business and management discipline, therefore enhancing the probability that all owners would profit, without sacrificing key-issue participation. These values still inform the field today, as evidenced by the work of customer-ownership pioneers like Drew Field, who uses the term Direct Public Offering or (DPO) to refer to an internal stock transaction where an existing or potential customer of a firm finances its development or expansion. When making distinctions, proponents of stakeholder ownership reference the CSOP as a financial instrument that was specifically designed to be tax-qualified, and rightly should be someday--just like its cousin the ESOP.

I'm sure the late Louis Kelso wouldn't have even given a thought to trademarking the terms "ESOP" or "CSOP." The spirit in which Kelso invented these ingenious financial tools for broadening ownership was not a proprietary one. Instead, he consciously made a lasting contribution within the public domain of finance. In a 1972 interview with The Washington Post, Kelso noted:

"People are hungering for property -- for a secure, permanent and independent link with spaceship earth that ownership represents and which only ownership can protect or defend. It is humiliating to possess nothing, to own nothing and hence to produce nothing, and to count for nothing. "

Throughout his career, Kelso had a greater mission in mind -- that of broadening ownership in productive enterprise to include as many Americans as possible. This explains why he also developed the GSOP (General Stock Ownership Plan) and the GSOC (General Stock Ownership Corporation) -- to further his aspirations of making an ownership stake available to all Americans. His legacy is embodied in proposed legislation termed "Capital Homesteading," a proposal to create a Capital Homesteading Account (CHA) for every American. The CHA is, of course, built upon the legacy, the foundation, the mechanics, and the financial tools originating from all of the "OPs" that Kelso built.

Louis Kelso paved the way for the shift -- the opening -- that we are experiencing today: Atomistic investors can now effectively play in an institutionally dominated investment world. By giving employees and customers the power to own, to participate, to contribute, and to directly profit from their endeavors, Kelso empowered both individuals and investors. We can't stand by and let any individual or corporation diminish this tremendous progress.