When partnerships first develop, partners should share power. If one partner dominates the process, the dynamics of the alliance may become unbalanced. And stakeholders—everyone who will be affected by the partnership including production staff, clerical workers, salespeople, accountants, and others—should participate all the way through the process. If the organization is unionized, a representative from the union organization must be included as well.

Moreover, the partnership must be voluntary. If a critical person or group chooses not to participate, that should not prevent the partnership from forming. It simply means that some elements have not moved along the Partnership Continuum at the same rate as others. In the case involving the U.S. Postal Service, one of the largest unions refused to partner with management in its effort to improve the workplace environment. But that didn’t stop managers from creating a partnership with others who shared a mutual interest. Like the Postal Service, you may want to keep the door open to potential partners who declined the initial offer. They may still have valuable insight and contribute to the overall success of the partnership.

Industrial production (IP) is another lagging indicator. Arobust relationship between high-yield spreads and industrial production is found at 0.76 with a 5–6 month lag. This means that a spread tightening in the high-yield market will induce an improvement in industrial production in a couple of months and give high-yield investors some comfort that spreads will be supported further in the future by better macroeconomic data like industrial production.

Industrial production is compared with default rates. A better IP is associated with increased profitability and cash flow situation of companies. This implies a better access to the capital markets and therefore lowers liquidity risk. As a result default rates will fall when IP rises and this translates directly into tighter spreads.

A robust negative correlation of around 0.75 exists between Moody’s trailing 12-month issuer-based default rate and the US year-over-year production for the period 1988–2003.