The Enron Collapse: Rightness Bias and Moral Disengagement in Corporate Governance

Abstract

The collapse of Enron Corporation in December 2001 — at the time, the largest bankruptcy in US history — has been extensively analyzed as an accounting fraud and corporate governance failure. This paper reframes the Enron case through an organizational psychology lens, arguing that the fraud was downstream of a more fundamental leadership pathology: a rightness bias that systematically disabled the organization's capacity for ethical self-correction. Drawing on Keltner's power paradox theory, Ariely's research on moral disengagement, and Eurich's work on self-awareness in leadership, we trace how Enron's culture of self-designated exceptionalism — 'we are the smartest people in the room' — progressively eroded the ethical constraints that prevent organizations from treating rules as applicable only to others. The case offers a framework for understanding how high-performing organizations can become systematically immune to ethical feedback.