This chapter looks at the rise of the intellectual field that makes up modern corporate governance. It enumerates the most important conclusions that fell out of the ways corporate governance came to be understood: (1) “good governance” is a function of the adoption of certain practices or structures, not the achievement of operational outcomes; (2) governance “best practices” can be identified and applied across heterogenous firms; and (3) the imposition of governance practices from outside the firm is superior to the governance arrangements generated by the various markets in which the corporation and its constituencies participate. Canada is gently mocked.

Does agency cost theory work in the real world? The various hypotheses drawn from agency cost theory are considered in light of the relevant empirical evidence. Agency cost theory appears to be able to explain almost anything, but it predicts nothing.

A key component of agency cost theory is that, if left to their own devices, managers will behave in self-interested ways. Natural experiments created by the adoption of constituency statutes, corporate opportunity waivers, tax windfalls, and legal changes to the corporate fiduciary duty show that even when given the freedom to engage in self-interested behavior, managers remain faithful stewards of the firm and remain focused on maximizing profits. Despite agency cost theory’s assumption that managers are self-interested, managers appear to be generally trustworthy. Even if some managers are inclined to behave in strongly self-interested ways, most of them are constrained by competitive markets, which provide little room for slack and diversion. Charlie Brown kicking a football makes an improbable appearance.