ConnectOne CEO Says Leaders Should Explain Risks, Not Promise Outcomes

ConnectOne Bank Chairman and CEO Frank Sorrentino III says executives can manage uncertainty by explaining the facts and risks behind decisions, a message that echoes Federal Reserve Chair Kevin Warsh’s push to limit forward guidance.

In an Oct. 15 commentary, Sorrentino argued that leaders should state what they know, what they are monitoring and how they may respond as conditions change. His advice addresses decisions made before executives can know whether rates, inflation or business conditions will follow a particular path. He urged them to describe the basis for a decision rather than promise a fixed outcome.

Sorrentino said his conversations with business owners often involve hiring, property purchases, acquisitions or borrowing. He does not offer a six-month prediction for rates or inflation. Instead, he reviews each owner’s cash flow, market conditions and risks, including how the business might fare if rates move. His approach asks executives to explain the assumptions around a decision and the developments that could make them reconsider it. “Certainty is rarely available when you need it most. Clarity always is,” he wrote.

Warsh has made a parallel case for central bank communication. In an Aug. 28 speech, the Fed chair argued that forward guidance should have a narrower role in normal times because forecasts and early commitments can constrain policymakers as conditions change. He called for a “quieter Fed,” saying, “Finally, a quieter Fed, more purposeful in its communications, is better able to meet its objectives.” Warsh’s effort to reshape the Fed’s policy framework addresses central bank guidance, while Sorrentino applies a similar communication question to companies making operating decisions.

The Fed’s statement language shifted over the spring. Its April 29 statement said the committee would assess the “extent and timing” of additional adjustments to the target range for the federal funds rate. The June 17 statement omitted that wording.

The Federal Open Market Committee voted 12-0 on Sept. 16 to raise its federal funds target range by 0.25 percentage point, to 3.75% to 4%. The change in language and the later rate increase provide policy context for Sorrentino’s advice, which focuses on how executives communicate their own decisions amid uncertainty.