You either keep misunderstanding, or your writing is confused. You were the one who said that shareholders are typically "friends of management," not me. But do boards react when the share price drops precipitously? Certainly they do. And there are all sorts of ways that activist and institutional shareholders act against management. It also appears you are making the wrong distinction. I never distinguished between public and private companies; I distinguished between incentives that drive for profit and non-profit entities. Having worked at and with both types of companies, the difference in efficiency and productivity between the two is quite stark. And a major reason for that (in general) is because non-profit companies don't feel the investor pressure to perform.