Sunrise at LaGuardia; Q&A webinar we hosted; How Did the Big Four Auditors Get $17 Billion in Revenue Growth? Not From Auditing; To Sue Goldman Sachs, You Have to Be Willing to Hang On—For a Long, Long Time

1. Greetings from LaGuardia, where there was a beautiful sunrise this morning. Susan (my wife), Katharine (my youngest 16-year-old daughter) I are headed to Banff for a week to celebrate my cousin's wedding on Saturday with the extended Tilson clan. It's gonna be EPIC!

2. Three dozen people joined our live webinar yesterday during which Glenn and I answered 20+ questions over two hours on: how to become a better investor, Facebook, China, resisting envy, how to tell whether you're a skilled investor or just lucky, consolidating industries (and the perils of highly acquisitive companies), the underperformance of value stocks and whether that will reverse, the process of finding stock ideas and then researching them, whether we consider macro factors and management guidance when investing, and many more. We've posted it on the Kase Learning YouTube channel here: https://youtu.be/j5VxqvhOgZQ (you can check out the many other videos posted on our channel and subscribe to it here: www.youtube.com/channel/UC7igQqc_-k3LWCeUGnpE7Cg).

3. Talk about conflicts of interest! How Did the Big Four Auditors Get $17 Billion in Revenue Growth? Not From Auditing, https://www.wsj.com/articles/how-did-the-big-four-auditors-get-17-billion-in-revenue-growth-not-from-auditing-1523098800. Excerpt:

Audit firms have a tough job. Some critics think they shouldn't have a second one.

For years, the Big Four accounting firms have pushed into consulting, seeking growth their core auditing businesses weren't providing. Since 2012, the firms' combined global revenue from consulting and other advisory work has risen 44%, compared with just 3% growth from auditing.

The result is that the bulk of the firms' revenue now comes from consulting and advisory, $56 billion last year, compared to only $47 billion from auditing. Five years earlier, auditing pulled in roughly the same amount—$46 billion—while consulting and advisory's haul was only $39 billion.

But that $17 billion growth in consulting and advisory revenue has come with concerns about the potential for conflicts of interest and loss of focus on auditing at the four firms, Deloitte Touche Tohmatsu, PricewaterhouseCoopers, Ernst & Young and KPMG.

Last month, comments from a U.K. regulator revived an old debate: Should the Big Four be broken up, with corporate auditing separated from consulting? That would leave audits handled by separate firms that do nothing but that type of work.

4. A cover story of Bloomberg/Business Week from a few months ago on how hard it is for women on Wall St. to file harassment and/or discrimination claims (a topic of increasing interest to me, as my oldest daughter just graduated from college and is heading into the business world). To Sue Goldman Sachs, You Have to Be Willing to Hang On—For a Long, Long Time. https://www.bloomberg.com/news/features/2018-05-03/wall-street-s-biggest-gender-lawsuit-is-13-years-in-the-making. Excerpt:

Cristina Chen-Oster's fight against sex discrimination began in 2005. She just got her big break.

About seven months into the job, Chen-Oster's team celebrated the promotion of one of the men who'd recruited her. The following account of what happened that night and its aftermath—much of which Goldman disputes—is derived from Bloomberg Businessweek's interview with Chen-Oster and legal filings.

It started, she says, with dinner downtown, then moved to Scores, a strip club. She got bored and left. A co-worker insisted on walking her the few blocks to her boyfriend's place. Upstairs, outside the apartment, he pinned her against a wall, kissing and groping her. Then, in the dry language of her complaint, he attempted to "engage in a sexual act." She fought him off. The next morning, the co-worker pulled Chen-Oster aside, apologized, and asked her not to tell anyone. She was 26 and new to Goldman. She kept quiet.

At the end of the year, Goldman paid her more than she'd been guaranteed, because of her standout performance, she says. But her boss also took away some of her best accounts and transferred them to London colleagues. One man with a similar client base got to keep his, and another who generated less revenue was awarded more than Chen-Oster. She focused on her work.

In 1999, when she thought she'd be moving across the country for another role at Goldman, she decided it was time to tell her boss what had happened that night. His response floored her. It went like, "Oh, that was you?" she says. He'd heard about the incident, but apparently not which woman was involved. He'd even helped the man seek therapy, he told her. Now that she was speaking up, he added, he had to report the matter to Goldman's human resources department. The boss advised her not to make a big deal of it, according to legal filings. Chen-Oster got the message: This was a formality, not justice. When HR asked for more details, she declined to provide them.

Chen-Oster says her career at Goldman went downhill anyway. Some job responsibilities were siphoned off, and a promising new market in distressed debt was handed to a man she'd trained. Her performance reviews, which helped determine her pay, were assigned to distant colleagues who couldn't provide meaningful assessments. The man who she says assaulted her—who ranked beneath her at the time—was promoted to managing director, then partner, winning entree into one of Wall Street's most elite, lucrative, and influential groups. In her eight years at the firm, Chen-Oster never rose above vice president. In that time, her compensation ended up increasing 27 percent, while her alleged assailant's more than quadrupled, according to legal filings.

It was when Chen-Oster returned from her second maternity leave, in late 2004, that she finally realized she no longer had a place at Goldman. Her team had been reorganized, and she'd been assigned a desk near a group of administrative assistants. They were all women. "It was so clear," she says. "It was such a visceral, visual representation of how little Goldman cared about my career." She quit in March 2005.

Gena Palumbo, who oversees employment law for Goldman, says the allegations about the incident, its aftermath, and Chen-Oster's boss's response are simply wrong. The way the firm sees it, Chen-Oster is far from a victim. She was her team's second-highest-paid salesperson of her rank the year after she reported the incident, Palumbo says. She adds that the reshuffling of clients was part of a wider redistribution, and the seating assignment lasted only 10 workdays.

"We're vigorously defending the firm against what we believe are meritless accusations," Palumbo says. "The key issues here are that Ms. Chen-Oster significantly delayed reporting the incident to employee relations, and when she did talk to employee relations she declined to provide any detail about the incident, or to in any way cooperate in the investigation."

Goldman isn't the only bank that's had problems with women. Merrill Lynch and Smith Barney settled lawsuits in the 1990s that described pervasive hostility and discrimination. Years later, Wall Street women still privately talk about being grabbed, propositioned, and humiliated.

A few months before Chen-Oster left Goldman, rival investment bank Morgan Stanley agreed to settle a sex discrimination case for $54 million. The plaintiff, Allison Schieffelin, also sold convertible bonds. Chen-Oster took note and contacted the firm that handled that case, Outten & Golden. She filed a complaint in July 2005 with the U.S. Equal Employment Opportunity Commission, which enforces federal laws against workplace discrimination. The decision wasn't easy. "Worst-case scenario," she says, "was that I'd leave the industry."