Smith, an industry outsider who resigns after only eight months in the job, will be replaced by divisional chief Erik Engstrom.
A company spokesman said: “Ian and the board decided it wasn’t the right role for him in the current economic circumstances. Erik has proven sectoral experience. There is no disagreement on strategy.”
Reed said Smith’s resignation would take immediate effect and was by mutual agreement. Engstrom has been CEO of the company’s scientific-publishing division Elsevier for the last five years.
Reed also warned that 2010 operating margins would likely be modestly reduced, due to a weak revenue environment combined with increased investment, particularly in U.S. legal markets.
Shares in Reed Elsevier fell 3 percent in early trading, the leading decliners in a flat European media index .SXMP.
Chairman Anthony Habgood said in a statement: “Ian has had the difficult task of leading Reed Elsevier during unprecedentedly turbulent economic times. The boards and I would like to thank him for his contribution in this respect and wish him well for the future.”
Smith — who had previously held senior roles at Royal Dutch Shell (RDSa.L), General Healthcare Group and housebuilder Taylor Toodrow (TW.L) — was not immediately reachable for comment.
Engstrom, 46, has been CEO of Elsevier since 2004. He previously worked at private equity firm General Atlantic Partners, book publisher Random House [BERT.UL] and Swedish paper-products firm SCA (SCAb.ST).
Under his leadership, Elsevier’s revenues and profits have grown every year, creating a business with turnover of 1.7 billion pounds ($2.8 billion) in 2008.
Paul Richards, analyst at London brokerage Numis, said: “Reed is supposed to be a solid defensive stock, so to have this sort of management turmoil and the cautioning on 2010 trading — it’s pretty disappointing.”
UBS analyst Polo Tang wrote in a note: “The news will be negative for sentiment, although we believe investor opinion on Smith was divided.”
Smith had made a largely unpopular decision to issue new shares in July representing 9.9 percent of the company’s issued share capital to reduce its $8.4 billion net debt after failing to sell its trade-magazines unit RBI last year.
Reed Elsevier stock traded in London has underperformed the FTSE 100 index .FTSE by 20 percent this year.
Smith had made a strong case for accelerating investment, particularly in the U.S. legal market, where Reed has been losing market share to Thomson Reuters (TRI.TO)(TRI.N).
In the company’s last trading update in July, he said: “Despite the global recession, I believe that now is the right time to develop more aggressive market and product strategies to capture the market opportunities and increase competitive differentiation.”
Reed said on Wednesday first-half trends had continued as expected in the second half, with advertising and promotion markets and employee screening remaining difficult but likely to stabilise as comparatives get easier.
“The major professional markets, accounting for the majority of Reed Elsevier’s business, are proving more resilient than most but not immune from late cycle pressures given the subscription nature of much of the revenue,” it said.
By Georgina Prodhan and Kate Holton
(Editing by Joel Dimmock and Andrew Callus)