After a disappointing showing in the 2001 General Election, where the Tories made a net gain of only one seat and failed to dent Labour's majority in the slightest, leader William Hague announced his immediate resignation (though it wasn't as if he had much choice in the matter), setting up a leadership contest. This contest would be the first of its kind, as due to reforms implemented under Hague, members would now get to vote directly for their preferred leader, albeit only after MPs had narrowed down the field of candidates to 2.
There were 5 candidates who ended up standing for the leadership: Michael Portillo, Iain Duncan Smith, Ken Clarke, David Davis, and Michael Ancram. Portillo, who had served as John Major's last Defence Secretary and had previously been the frontrunner for the leadership in 1997 before infamously (or famously, depending on who you asked) losing his safe seat in the most shocking result of the night, was once again the frontrunner for the leadership. However, the Michael Portillo of 1997 was very different to the Michael Portillo of 2001. The previous Portillo was a hardline Thatcherite (which was perhaps best exemplified by his controversial SAS speech), and was noted by the press as being a darling of the Tory right. This Portillo, on the other hand, had clashed ideologically with the Thatcherite Hague for almost his entire time as Shadow Chancellor. The new Portillo was running as a modernizer, saying the party must soften its image and reach out to women and LGBT people, however Portillo was just as much of a Eurosceptic as before. Portillo's platform was extremely polarizing within the party, and Portillo would struggle to win over MPs beyond his inital 49 on the first ballot, as much of the Tory right could not support him despite agreeing with his Euroscepticism, and much of the Tory left could not support him because of his Euroscepticism.
Taking what would 4 years ago been Portillo's slot as the right's candidate was Iain Duncan Smith. Smith had served in the Shadow Cabinet for the whole of Hague's tenure, first as Shadow Pensions Secretary and then as Shadow Defense Secretary, but he had never actually served in the cabinet, and indeed had only been an MP for 9 years. On top of his inexperience, Smith also had to deal with the baggage of his actions during the Major premiership, when he had been one of the main Maastricht rebels. After all, as Smith's critics were quick to note, how could a man who played such a role in dividing a Conservative government possibly unite his party and lead it to victory? It didn't help either that Smith was "lacking" in the public speaking department, to put it lightly.
Standing in contrast to Iain Duncan Smith was the Tory left's candidate of Kenneth Clarke (who had previously stood for the leadership in 1997). Clarke, unlike Smith, had served long stints in government, including as John Major's last Chancellor. Clarke, unlike Smith, was popular with the public at large, with opinion polling showing him to be the general public's preferred candidate, as had been the case in 1997. Lastly and most important of all, Clarke, unlike Smith, was a staunch Europhile. Indeed, this Europhila had held back Clarke in 1997, for if Clarke had not been such a passionate and devoted Europhile it is quite possible he would have won the leadership, as he was widely respected within the party (another area where he and Smith converged) for his time in cabinet.
The other 2 candidates standing for the leadership, David Davis and Michael Ancram, were not considered serious contenders to win, in Davis's case due to a lack of stature, and in Ancram's case due to his deep ties to William Hague.
The first ballot of the election was held on the 10th of June. As expected, Michael Portillo came in first, Clarke came in second, and Iain Duncan Smith came third. The question leading up to the ballot had been over who would come in last between Davis and Ancram and therefore be knocked out. The answer turned out to be neither of them, with both of them tied with the support of 21 MPs each. In such a scenario, the party rules called for continuous re-runs until one candidate was eliminated. Said re-run took place 2 days later, on the 12th of June, with Ancram coming last behind Davis, although both candidates lost support compared to the first round. Davis, upon realizing he had almost no chance at winning the leadership, dropped out of the contest. However, the bigger story was that Michael Portillo had picked up the support of only one more MP, compared to Clarke and Smith who picked up 3 more MPs each. It appeared Portillo had a large amount of initial support, but was few people's second choice. Indeed the media now, which had previously, like most everyone, considered Portillo the frontrunner and man to beat, began to speculate if Portillo would fail to even make the membership run-off.
It was under this cloud that the Third Round of MPs balloting would take place. Despite his polarizing nature, Portillo did just
enough to make the members vote, coming in second and only one MP ahead of third placed Iain Duncan Smith. Clarke enjoyed a sizable jump in support between ballots, picking up the support of 20 additional MPs.
However narrow the margin was, Portillo and Clarke would now have to face each other in the first ever member's vote. From the very start of the contest, Clarke had been hampered by his staunch Europhila, and this was perhaps even more the case during the member's vote. Despite Portillo's polarizing nature, Clarke winning the leadership was unlikely, after all, those disillusioned by Portillo's more left wing traits knew voting for Kenneth Clarke would hardly make things better, with Clarke's europhila adding insult to injury. Thus on September 13th (delayed by 2 days after the 9/11 attacks), Portillo was announced as the new leader of the party, winning the member's vote by a margin of 58-42. Despite his hefty margin, everyone knew Portillo would have to deal with large amounts of internal discontent, having won the support of only one-third of MPs and having gained the support of only 5 additional MPs throughout the balloting. Such internal discontent would not make Portillo's suggested modernization any easier, but that was a problem Portillo knew he would face.