As they jumped into cars at Washington’s Dulles airport last June, hopes were high among the 100 top managers at Reed Elsevier.

They had been summoned to a retreat at Leesburg, Virginia, to hear what the future held for the publisher under its new chief executive, Ian Smith, appointed last November as a surprise choice to replace Sir Crispin Davis as head of one of Britain’s biggest media companies.

Leesburg was chosen for the meeting because it was cheap and handy for the airport. It is perched on the Potomac River, which acted as a border between the battling northern and southern American states nearly 150 years ago. Whizzing up the Dulles Greenway, the executives could not have known how apt the location would turn out to be.

Less than five months later, Smith would be ousted by his chairman. In the cradle of one of America’s most famous conflicts, Reed Elsevier was gearing up for a boardroom civil war of its own.

That day in Leesburg, Smith warned managers of the tougher times ahead and of the importance of investing in the company, which owns the legal search engine Lexis Nexis and the medical journal The Lancet. His early prognosis for the business was that law firms and universities were clamping down on spending in response to the economic downturn.

“We need to lift our eyes and look beyond this recession,” Smith repeated a month later for investors. “Since I have been here I have become convinced that we have a fantastic opportunity at this company.”

Yet when Anthony Habgood, Reed’s new chairman, followed Smith’s gaze skyward, all he could see were dark clouds ahead. A rift that developed over the summer finally spilt into the public domain last week.

After Habgood consulted shareholders, Smith was out, and Erik Engstrom, the well-regarded Swedish boss of Elsevier, the group’s science and healthcare division, was in. Habgood blamed the recession and said Smith had become the wrong man for the job and lacked crucial media experience.

Such direct action was a shock. After all, Smith, a Shell alumnus who set up and sold the Monitor management consultancy, had been brought to the board by Anna Mann, the veteran headhunter. His appointment was approved by wise nonexecutive heads, including David Reid, the Tesco chairman, and Lord Sharman, the Aviva chairman.

It was also out of character. The power of the internet means that Reed has long done away with its dusty academic journals but the £5.6 billion company still clings tightly to its staid reputation. Davis, in charge for the past decade, revelled in how predictable and boring Reed was.

But it was not the first jolt shareholders have suffered this year. Smith had a baptism of fire after announcing in July an £842m equity placing to cut the company’s £5 billion debt pile — leaving egg on the face of the old guard, including the finance director Mark Armour.

Their failure to sell RBI, the business publishing division that owns the showbusiness bible Variety and New Scientist, meant Smith had inherited a company that was vulnerable to losing its credit rating. To top it off, half-year profits had slumped, from £393m to £188m, thanks to impairment charges and restructuring costs.

Habgood was even newer to Reed than Smith. A management void had opened up at the Dutch bank ING and it was filled by Jan Hommen, who chaired both ING and Reed and was among those who had approved Smith’s appointment. At the start of June, a hasty search parachuted in Habgood from Bunzl, the distributor of napkins and meat trays, where he made his name as a no-nonsense operator. The contrast with Hommen could not have been greater.

“He is clinical and effective but he is low on emotional intelligence,” said one executive who knows Habgood well. Another said: “Tony doesn’t smile very often.”

Some analysts thought the pair would cook up something radical between them. Smith’s only previous FTSE 100 role had been short-lived as he drove housebuilder Taylor Woodrow into a merger with George Wimpey, leaving soon after. Habgood, meanwhile, had grown Bunzl through a string of takeovers, pausing to demerge Filtrona, the cigarette filter manufacturer, in 2005.

The truth could not have been more different. Rather than pulling together, the duo were soon pulling apart. Habgood backed the July fundraising but at the same time insisted on holding sway at the results presentation — a rarity for a nonexecutive.

“I’ve been chairman for just two months so it’s early days for me,” he said in July, spectacles perched on his nose. But it quickly became clear that Habgood planned to play anything but a part-time role at Reed.

Smith’s proposal for the future was hardly radical. If anything, it echoed Davis’s first move from 10 years earlier when he sank £750m into the internet. It was only later that he dived into educational publishing, only to reverse out again soon after.

Smith’s main aim was to invest more in Reed’s information tools. Davis had done an effective job in papering over the cracks to collect the plaudits when he left but he had sacrificed long-term investment in favour of short-term margins.

Thomas Singlehurst, a media analyst at Citigroup, points out that Reed had historically invested 3% to 4% of sales in capital spending, compared with typically 7% to 9% at Thomson Reuters.

Lexis Nexis, in particular, was suffering at the hands of the rival service Westlaw, Thomson Reuters’ legal database. It had dipped a toe into practice management but not very far.

Smith proposed investing up to $500m in the platform over the next four years. He also wanted to tweak how Elsevier sold its services, targeting scientists in laboratories instead of academic librarians.

The plan was approved by the board and senior managers, including Engstrom and Andrew Prozes at Lexis Nexis. Shareholders, who Smith had just tapped for cash, were less enthusiastic about the message when he briefed them more fully in August. Nor did they think much of his delivery.

“He failed to impress us with his grasp of the business and a vision for what he was going to do,” said one leading investor. “Smith was so woolly I thought I was at a Davenport Knitwear presentation,” said an analyst who saw him over the summer.

Matters took a further dive in September, when Smith reported back with that quarter’s trading figures. Business was worse than the board expected. RBI, which Reed was trying to sell parts of again, was haemorrhaging advertising income. It became clear that profit margins would carry on weakening into 2010.

Insiders say that while he never objected to what Smith was doing, Habgood’s relationship with his chief executive was strained. Armed with feedback from shareholders, the chairman knew he had a choice. He could back Smith or sacrifice him to buy Reed more time.

Habgood turned to Engstrom, an energetic Swede with a private-equity background who had originally been deemed too young to succeed Davis. Smith received a £1.1m pay-off for his trouble.

For now, Reed’s civil war is over. But the long battle to win over doubters in the City has only just begun.

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