Communication is the most vital aspect of maintaining a guild and alleviating problems when they arise. That is the thing I can tell you from my many years of online gaming and leading guilds through out every game I've played.
My guild had similiar issues as yours did at one point. We originally had a very militaristic structure, with a President, Vice President, Senate, Admiral, and so forth down the chain, with several other ranking divisions for other purposes. Over time and as we grew, the ranks ended up causing more friction and it did eventually cause a part of the guild to leave and form their own guild, much like you did in yours.
Shortly after this occured, I made the decision based on what happened to refine the way we operated and revamped our entire structure. It took time, but over all because I learned from the mistake and worked to correct it, we became a Council type structure and abolished the ranks, except for a few divisions for purely roleplaying purposes(Which I made sure everyone understood that it was not better than anything else, it was for 'roleplaying' only.)
It sounds to me that what is happening is being caused by a few different factors. Bensky touched on most of them and I'd like to reenforce his points as well.
One of the biggest factors that I gathered from your comments is the lack of a active council or leadership. Without a active leadership, especially with that many people the communication channels are going to be severely hampered and as you said, it's hard for you to push issues with the Council since they aren't active. What I would do if in your position, and this is just what I personally would do, is work with the other Co-Leader you have and recruit new active Council members.. perhaps by a guild vote to help enforce the fact that you are willing to listen to them and let them help decide the direction of the guild. It will hopefully motivate people to help the guild knowing that eventually they may be able to help lead it.
If you do that, you will also need to make it known that you are going to deal with the situation in the best possible manner. As a leader, it's your job afterall. You'll need to decide whether to allow the Officer to continue to keep his 'self named' division of sorts or to ask him to stop it for the betterment of the guild. If it is causing a big issue and dividing the guild and he is not willing to understand that and change it, then you will need to make a tough decision. Do you allow him to stay and to continue to segment the guild or do you remove him and allow those who want to be in his division to go with him? I hope it doesn't come down to that, but at times it will but you have to do what is best for your guild and it's continued growth.
One other important thing I have learned is.. people come and go. It's a natural process and vital for a guild to continue to grow. While you will always have a 'core set' of members, you will always need a fresh breath of air every now and again to keep things from being stale.
My over all advice, organize the leadership by replacing them if you have to, communicate with the guild as a whole on a regular basis, and deal with the Officer who is currently causing the strife in the means you have to.
I really hope that helps you in some way. Best of luck to you.
Rothin Skyshrine
Retired Galactic Senator
Former Player Association Correspondent
"A people that values its privileges above its principles soon loses both."