Intrigue at Hearst's castle

(Fortune) -- There was plenty of intrigue this week in the news that Hearst chief executive Victor Ganzi is stepping down from his post, citing "irreconcilable differences" over policy with the company's board of trustees after six years on the job. Sure, it seems like CEO posts - in media and elsewhere - are highly precarious these days, but there was no glimmer of unrest at Hearst, which Ganzi, who served as CEO since 2002, joined 18 years ago.

Indeed, the company just published a glossy annual review in which Ganzi boasted that Hearst had achieved record revenues and operating cash flow in 2007. By Thursday morning, the Hearst corporate Web site had been revised. If you downloaded said annual review, Ganzi's eight-page intro recounting last year's performance and pledging to "endeavor to achieve the best results possible" in 2008 was as gone as he was.

In a few ways, Hearst is a singular enterprise among big American media giants. For one thing, the 121-year-old Hearst is the legacy of press baron William Randolph Hearst, who died in 1951 and, for all his ego and flair, might not have imagined that the company would be as vast as it is today, with magazines like Cosmopolitan, Good Housekeeping and Esquire, newspapers like the San Francisco Chronicle and Houston Chronicle, a passel of TV stations, and a business information division. And unlike Hearst's original publishing business, today's version is far more diverse and international and derives the majority of its estimated $1.5 billion in operating profits (on revenues near $8 billion) from big stakes in cable channels like ESPN, Lifetime, and Arts & Entertainment.

The other curiosity about Hearst is that it's private - which isn't just to say that it's privately owned, but that its highest echelons have the mystique of a kind of secret society. And one of the qualities of this society is that its members don't leave. This culture stems from the trust that The Chief, as William Randolph Hearst was known, set up. The trust is basically run for the benefit of heirs who The Chief would never know; it's meant to dissolve when the last remaining Hearst who was alive when he died passes on - actuaries hired by the company have pegged that at 2045.

Today, there are some 60 beneficiaries, but Hearst wanted the trust in the care of non-family members. Of 13 trustees, his will mandated that eight of them are non-family. Accordingly, most of the current trustees are current and former Hearst managers, and the board of trustees oversees a separate 19-member corporate board. Although Ganzi is stepping down as both CEO and a director of Hearst, he remains, for now, a trustee - an appointment that is usually for life. If he leaves the trust, that would mark how truly unusual his departure is.

Another trustee is Frank Bennack Jr., Hearst's vice-chairman and Ganzi's predecessor as CEO for a 23-year-run during which some of the company's game-changing investments in cable channels were hatched. Bennack, who is 75, is taking over as CEO while a search committee is formed to find a replacement for Ganzi. Even in retirement, Bennack has been a big presence at Hearst - in addition to hand-picking Ganzi, a lawyer who joined the company in 1990, both men played a big role in the building of the refulgent Hearst Tower that the company paid $500 million in cash to construct in midtown Manhattan.

When I wrote a story about the tower before it opened in 2005, it was Bennack who proudly gave me a tour, while Ganzi (typically) stayed out of the media glare. One of the inferences of Ganzi's departure is that the differences in policy he had with his fellow trustees were at least partly the consequence of how he differed from Bennack. Unlike his predecessor, Ganzi did not come up through the newspaper and broadcast industries, and was not seen as having the ground level understanding of them that Bennack did. On the other hand, Ganzi - or Vic, as he is known at Hearst - delivered record numbers in each of his years at the helm and had a savant's capacity for taxes, finance, acquisitions and more.

So what were these policy differences? Typical of Hearst, neither Bennack nor Ganzi would come to the phone. It's easy to say that perhaps the trust lost confidence in Ganzi's faith in the challenged newspaper business, which included buying a minority stake and rights for control in Dean Singleton's MediaNews chain a couple of years ago.

But people internally say that wasn't the issue. One might also question whether Ganzi's approach to the Internet and digital businesses writ large - which has largely taken the form of minority portfolio investments in a variety of smaller companies - was sage. Then again, what media company would you say has conquered the web? The biggest deals done under Ganzi's watch, besides MediaNews, were a stake in the Fitch bond rating service (also with rights to one day buy control) and the building of the Hearst Tower, which the company would argue has been both good for business and a smart investment. The best sense from people close to Hearst that I got was that, despite these moves and more, Ganzi's plan for how to continue growing the company left his colleagues tepid.

So who in their right mind would want a job in which six years of record results isn't enough to keep your job? This being the storied, mysterious Hearst - plenty of people, no doubt, both inside and outside of Hearst. Among those who would logically be seen in the running are Cathleen Black and David Barrett, who run Hearst's magazine and television businesses respectively. (Barrett, unlike Black, is a Hearst trustee.)

One person who will be closely watched is James Asher, the company's senior vice-president, who worked closely with Ganzi. Another name worth mentioning is Steven Swartz, the second-in-command in the newspaper division who is well regarded at the company and further from retirement than Barrett or Black - but perhaps is more logical as a second-in-command candidate. A Hearst spokeswoman said nothing has been decided yet and the search is only beginning. The only certainty is that Bennack will be back in the saddle until the trustees find another person who they think can fill his rather large shoes.