The postmortem on last month's two failed merger attempts thatwere victims of member opposition hits on three ingredients: poorcommunications, a rushed timetable and lack of enough advanceexplanation to constituents and the public.

That was the assessment this week among merger consultants andthe principal parties themselves as to what went wrong with therejected mergers in Montana and Louisiana, the first such formalpublic defeats in years involving a member vote at large ormid-sized CUs.

“It seems pretty clear that the positive message simply did notget through and somebody in management or on the boardsmiscalculated potential opposition,” surmised David Bartoo, head of Oregon-based Merger Solutions Group,which in serving a CU client has at times encountered a scenario inwhich concerns were not addressed in advance.

In his experience, the differences are cleared up at the board,management and employee levels before a formal member vote is puton the table, he said.

In Montana and Louisiana, the two negative member votes occurred at the $63million Montana First CU of Missoula, Mont., rejecting a bid by the$432 million Horizon CU of Spokane Valley, Wash., and by the $96million Main Street Financial FCU of Baton Rouge, La., turning backa takeover by the $260 million Jefferson Financial CU of Metairie,La.

Management of both suitor CUs, Horizon CU and JeffersonFinancial, acknowledge their communication mistakes and despite therejection vow to work toward a revote perhaps later in 2012.

“I think you could say these two cases are more of anaberration, a bit rare and not indicative of any kind of trend, butit is a reminder that you can never take the members for granted,”observed Dennis Dollar, the former NCUA chairman and head of aBirmingham, Ala., consulting firm bearing his name.

It seems apparent in both Montana and Louisiana, he said, thatthe benefits to the members of how their financial lives or wouldbe improved or the credit union itself strengthened was notcarefully advanced, said Dollar.

Sometimes, passage of a merger deal can depend on how active themembers are and simply how content they are with status quo,suggested Tom Glatt Jr., head of a Wilmington, N.C., consulting firm.

The apparently vague description of Montana First's proposedmerger with Horizon, as an out-of-state entity, apparently did notgo over well, said Glatt. The lesson to be learned there is “if youare trying to convince owners to transfer their ownership to a neworganization, you better spend a great deal of time developing atight, concise value proposition,” he said.

“Most credit union leaders see life from the inside out and theMontana First merger made perfect sense from that vantage point,”he said. “Members obviously don't have a shared perspective.In fact, Montana First is doing well–decent membership growth,solid loan and deposit relationships–which means their members areprobably content. Content people generally see no need for changeto the status quo.”

Christie Sisco, president/CEO of Montana First, and who hasrepeatedly expressed both surprise and disappointment at the Jan. 5outcome, has said the low turnout–82% of the membership did notvote–was a huge factor.

“It is so unfortunate” she said that the final result from aminority “could affect the membership at large.”

To other CUs entertaining mergers, “I would recommend using theWeb to the best of your ability” she advocated. In hitting on theproblem of getting employees behind the merger, the message thateveryone at Montana First was guaranteed a job in Missoula, if theywanted it had to be stressed.

A similar problem occurred in Baton Rouge with rumors spreadingthat branches would be closing and staffers would lose jobs, saidMark Rosa, president/CEO of Jefferson Financial, the acquiring CU.Those rumors had to be quashed early on which did undermine thefinal negative vote, he said.

Michael Bell, an attorney with Detroit-based Kotz Sangster and amerger adviser, maintained CU consolidation plans are sometimes“negatively affected by the fear of big banks and the Wall Streetphenomenon.”

In other words, he explained, the big bank-Wall Street taint cansometimes create negative feelings, which need to be addressed. Hesaid he has seen studies “that show 90% of people will say no to aproposed change at the beginning simply because it is achange.”

Regarding the Jefferson-Main Street merger in Louisiana, Glattsaid he suspected Main Street management played down its economictroubles as it struggled with the NCUA assessment, but it shouldhave been out front in the merger discussion.

“What is interesting about Main Street is that to read theirnewsletters over the last two years, you would never know of theirstruggles,” said Glatt.

Some of his CU client are very candid about the tough times theyhave had and, in effect, have prepared members for the possibilityof tough choices, such as a merger, said Glatt.

Denny Graham, head of St. Louis-based FI Strategies LLC, whichadvises CUs and banks, said sometimes management and boards simplylack the time willingness, energy or knowledge to think through thebenefits of a business combination.

“In any merger, there are three constituencies–the boards, theemployees and the members–and presumably the boards understand thelogic and the merger negotiated for the right reasons,” saidGraham.

The boards may be supportive but often, the other twoconstituencies are shocked by the news. The affinity relationshipalso plays a part, said Graham, who noted that members of one CUmay simply say, “Those guys aren't like us–different state,different company which rallies the troops against a merger.”

And employees do not always understand the business logic andworry about losing their jobs, and so “the key takeaway is that theboards must be prepared to defeat any emotional arguments that willcome up during the discussions,” Graham added.

“Emotion often trumps business logic,” he concluded in a pointalso echoed by Ted Thames, senior director of Cornerstone Advisorsof Scottsdale, Ariz., who also finds CU mergers more emotionallycharged than bank mergers, which are more financially charged.

Apparently with credit unions “there is more tradition andpride” at stake, he concluded.