Reforming capital markets to build broad-based prosperity and reduce economic inequality

What can institutional investors learn from a room full of CEOs, employee-owners, ESOP trustees, and HR professionals? Quite a lot, it turns out. In this piece, PDI Co-Founder and Executive Director Delilah Rothenberg reflects on her experience at the 2026 National Center on Employee Ownership (NCEO) annual conference in Milwaukee. The piece covers the governance parallels between ESOP firms and public companies, the importance of valuation discipline and labor protections in a potential downturn, and the structural nuances that distinguish employee ownership transactions from conventional private equity. It also makes the case that institutional investors bring expertise this community actively needs — and that there is much the investment world can learn in return.

Public companies implicitly carry two income streams — one belonging to capital (reflected in share prices) and one belonging to labor (embedded in wages and employment) — but these are valued and protected asymmetrically. Capital can diversify risk, trade its claims, and benefit from corporate governance oriented toward its interests, while labor cannot diversify, holds non-fungible skills, and lacks board representation or meaningful equity participation. Critically, reductions in labor's income stream (through job cuts, automation, or reclassification of workers) often directly increase the present value of capital's interest, meaning the system is structurally designed to transfer value from labor to capital — especially in sectors facing technological or policy-driven disruption. This makes the case for enhanced worker participation rights, both in governance and through equity ownership, particularly urgent in industries like rideshare and autonomous vehicles where the elimination of human labor is not incidental but central to the business model, and where the gains from that elimination will flow entirely to capital unless the model is changed.

In March, PDI and Ownership Capital Lab gathered institutional investors — pension funds, family offices, and wealth managers — to explore private credit as a vehicle for financing employee ownership transitions in the lower middle market. The conversation surfaced a compelling thesis: with an estimated $5 trillion in small business value set to change hands by 2035, a structurally undercapitalized market is opening up that offers downside-oriented credit discipline, ESOP tax advantages, and a mechanism for ensuring productivity gains — including from AI — are shared broadly rather than concentrated.