Recent theories of corporate organization hold that mutually owned firms arise to remedy agency problems associated with ownership by a separate class of stockholders. We propose an alternative theory of mutuality, in which mutuals arise endogenously as a self-selection mechanism to cope with adverse selection and systematic risk. This theory makes predictions about the nature of customer contracts and the pattern of dividend payments adopted by mutuals. We do not systematically test this theory against others. But the behavior of the Farm Credit System, a large financial mutual, is shown to be more in accord with our theory.