One person at the top with some assistant leaders (officers) works well in casual clans with varying amounts of member activity, but total democracy can also function if the clan is cohesive and competitive.

By this I mean really cohesive - as in, same nationality and some ties in real life. The all-Finn Guild Wars guild (around top 20 for about two years) I was in had a policy of shared leadership and it worked quite well, with responsibilities and assets (like vent servers, wiki, prize conversion to money, contact persons etc.) delegated to members with the time, inclination and ability to take care of these duties. Daily dialogue over an irc channel or vent made it all work.

That way, if there is an argument and a schism occurs, the clan wouldn't fall apart as easily.
Arguments happen in competitive environments all the time, it's just a matter of identifying and dealing with the problems. Sounds like the officer in your example was clearly ill fit to be in a competitive guild, and the guild in general was not solid enough to survive any reformation.