Gestalt theory By Max Wertheimer.

Gestalt theory By Max Wertheimer.

Max Wertheimer is among the most notable names in the field of psychology. His contributions can be found in nearly every area of psychology. His thoughts and ideas have had far reaching implications. In the last three or four decades, a lot of research based on his works and ideas has been conducted. However, it is a sad fact that his contributions to psychology could be fully discovered and properly recognized 45 years after his death. The Wilhelm Wundt medal of the Deutsche Gesellschaft für Psychologie was awarded to him 45 years after Wertheimer’s death. Importantly, there is something complex about his works. Understanding their roots has proved difficult for the psychological community. His Gestalt theory is the main work to have made him famous.

The people behind the early gestalt theories were the trio at whose centre was Wertheimer, the other two being Kurt Koffka and Wolfgang Kohler. The central focus of the Gestalt theory was the idea of grouping. It laid emphasis upon the higher order cognitive processes. Grouping can be understood as aspects of visual and other stimuli which make the subject interpret a particular problem or a specific perceptual event in a certain way. There are four important concepts related to grouping.
They are –
    1.    Proximity – elements that are close in space tend to be seen as one or a few objects.
    2.    Similarity- items having some similar characteristics grouped together.
    3.    Closure – complementary elements or the elements that complete some shape or object tend to be grouped together.
    4.    Simplicity – the tendency to organize the objects into simple figures.
Collectively, these four elements are known as the laws of organization. They are relevant to understanding perception and problem solving.
Wertheimer was mainly concerned with problem solving. He presented a Gestalt interpretation of problem-solving episodes of famous scientists like Galileo or Einstein and children presented with mathematical problems. According to Wertheimer problem solving was all about the ability to see the entire structure of the problem. The Gestalt Theory applies to all the aspects of human learning. Particularly it is relevant to perception and problem solving. Wertheimer’s theory also had a very strong influence on the works of Gibson. Wertheimer gave a classic example of the Gestalt theory in the activity of children finding the area of parallelograms. He showed that as long as the parallelograms are general figures the children apply the standard procedures to find their area. However, once they are provided with a figure with a novel shape and orientation, they are forced to understand its true structure in order to find its area.
Wertheimer’s Gestalt theory is based upon three main underlying principles:
    1)    Encourage the learners to understand the true nature of a problem.
    2)    The gaps or the incongruities can be stimulants for learning.
    3)    Instructions should be based upon the four laws of organization proximity, closure, similarity and simplicity.
The practical applications of the Gestalt theory can be found in the area of education. Wertheimer believed rote learning was learning without understanding. He contrasted it with productive thinking. The learning people acquire through productive thinking is not just remembered longer but can also be applied easily in real situations. Gestaltismsuggests learners should understand the true nature of a problem and try to associate its various elements. Excluding implicit assumptions is proper since they can be incorrect. In the area of concept and knowledge maps design, theGestalt law has been applied successfully to provide positive results. The influence of Wertheimer’s ideas has been felt in the works of several psychologists who followed him. His contribution to psychology is unique. Even if it was recognized late, it has earned him a distinct reputation.

The SOX: Increased accountability of the CEO and CFO

The Sarbanes Oxley Act of 2002

The Enron scandal and its collapse occurred in 2001. The scandal proved self-regulation and peer review were insufficient to maintain accounting ethics. As a result, the Sarbanes Oxley Act of 2002 was introduced. The Act came into force after a series of Congressional hearings on the Enron scandal.The scandal had shaken the public’s and investors’ confidence in the capital market, resulting in significant pressure on the Congress to act fast. Introduced in 2002, the Act brought some major changes to corporate governance and regulation of financial practice. SOX was named after the Senators Paul Sarbanes and Representative Michael Oxley who  were the most important names behind SOX.

 SOX introduced an important requirement- deadline for compliance. The entire Act is arranged into eleven titles. Of these titles, 302,401, 404, 409, 802 and 906 are of particular importance regarding compliance. The act, apart from being appreciated for its focus on accountability and compliance, has also been criticized widely. Many held that the act would lead to a loss of risk taking and competitiveness. However, whenever there is a comparison, the benefits of SOX have far outweighed its disadvantages. Some of the most important changes that the act introduced were targeted at the senior management and the top executives.

The primary aim of the Act was to improve the status of accountability inside the financial organizations. For this purpose, it was essential to target the people in the upper echelons of the organization. Particularly, the act holds the CEO and CFO accountable for several factors. The CEO and the CFOare required to officially certify the appropriateness of the financial statements and disclosures. They should also provide that these documents represent all the finances and operations of the firm fairly. The act also prohibits most types of personal loans to the CEO.

Limitations related to insider trading during certain events are also a part of the act. The Section 404 contains some of the most important requirements related to internal controls. This section requires the companies to assess the effectiveness of their internal controls related to financial reporting. Companies must report regarding this assessment in their annual fillings with the SEC. In case of the off balance sheet transactions there is a need for extra disclosure.SOX introduced certain criminal penalties related to several financial frauds. It increased the term for mail frauds from five to twenty years.

‘SOX’ has been effective and this was proved in the subsequent years. The number of ethical violations in accounting firms has reduced sharply. The condition of accountability in the finance industry has improved. However, along with these improvements the law created some pressures. SOX has also been an object of severe criticism due to it.  The internal control mandate of SOX introduced some new costs that could be burdensome for the small companies. The changes the law introduced, resulted in compliance related extra burdens. It is the primary reason that the act has been criticized heavily. Yet, the Enron scandal had already proved that the compliance related requirements could be worth it. Apart from that another major area where the law was able to bring effective changes, was related to the strengthening of the audit committees and corporate governance.

 The changes brought about by the SOX can be summed up as follows:

  • #1.   Establishing independent oversight of the public company audits.
  • –       PCAOB was established ending more than 100 years of self-regulation.
  • –       PCAOB provided with inspection, enforcement and standard setting authority.
  • #2.   Strengthening of the audit committees and  corporate governance.
  • –       Audit committees independent of management required for all listed companies.
  • –       Independent audit committee made responsible for the appointment, compensation and oversight of the external auditor instead of the management.
  • #3.   Improved transparency and investor protection as well as executive accountability.
  • –       CEO and CFO were required to certify certain financial reports.
  • –       Corporate officers and the directors prohibited from misleading auditors fraudulently.
  • –       Clawback provisions for the CEO and CFO pay after financial restatements instituted.
  • –       Protections for the whistle-blowers established.
  • –       Management required to assess the effectiveness of the internal controls regarding financial reporting.
  • –       The auditors required to attest to the management’s representations.
  • –       Fair Funds Program established at the US SEC for compensating the victims of securities fraud.
  • #4.   Improved auditor independence
  • –       Audit firms prohibited from providing certain non-auditing services.
  • –       Audit committee pre-approval of all the audit as well as non-audit services made essential.
  • –       Lead audit partner rotation required every five years.