The British independent labels that flourished during the post-punk era had such distinct identities that they could be thought of as physical locations. If Factory felt like an art gallery-cum-nightclub and Rough Trade a left-leaning college campus, then 4AD was a church. Although the label was broad enough to encompass both the raucous rock eccentrics the Pixies and the dance music one-hit wonders MARRS, founder Ivo Watts-Russell's core values were epitomised by This Mortal Coil's 1983 version of Tim Buckley's "Song to the Siren": beauty, mystery, dream logic and emotional fragility.

The label's strong sonic personality was mirrored by designer Vaughan Oliver's extraordinary sleeve designs, which helped to give the label itself a cultish celebrity. As one fan observed, "The music entered through your eyes and the music got into your ears." Less poetically, the music paper Sounds dubbed it "the manic depressive Motown". Watts-Russell himself said his enduring concern was "the beauty of despair". Longstanding fan Martin Aston's 600-page chronicle is a suitably extravagant enterprise (Oliver designed the cover) but devotees may not thank him for laying bare every spat, squabble and severed alliance in the history of this most private of labels. The title of This Mortal Coil's debut album comes to seem grimly prophetic: It'll End in Tears.

At the centre of the book is an exhaustive interview with Ivo Watts-Russell in his remote home in New Mexico, but the retired founder is a much more melancholy protagonist than, say, Creation's Alan McGee or Factory's Tony Wilson. The youngest of eight, he was born into a family of fallen aristocrats and raised on a dilapidated Northamptonshire estate in an atmosphere of almost Victorian froideur. "We never related emotionally to either parent," he says bluntly. Starved of affection from the usual sources, he looked to music for emotional nourishment, thus setting a pattern for the rest of his life. He had an acute ear for music that spoke to his idiosyncratic tastes but little facility for understanding the needs of the people who made it.

While the typical 80s independent label boss used wheeler-dealer chutzpah, canny diplomacy and booming self-confidence to shield thin-skinned artistes from the harsher aspects of the record business, Watts-Russell was himself a thin-skinned artiste, fearful of commerce and compromise. When the second album by his own project This Mortal Coil was savaged by the music papers, he wept openly. When an artist he craved chose a rival label, he was personally wounded. When relationships went sour, he was incapable of fixing them. His eventual estrangement from the Cocteau Twins, his erstwhile friends and marquee band, upset him so much that he left one of their shows in tears during the first song. But when Aston asks why he did not try to mend the rift, Watts-Russell seems flabbergasted: "It might involve talking about feelings. I'd have had to have had a bucketload of group therapy in order to do that."

It's striking how many 4AD artists were similarly frail and uncommunicative. Several of Aston's interviewees have left the music business; others respond only via email; a few, most notably Cocteau Twins's Liz Fraser, refuse to talk at all. More extrovert signings tended to leave the label quickly, perceiving the inner circle's intense shyness as prissy and self-regarding. "It was all very beautiful and precious, everyone wore black and had their heads shaved," scoffs Rudy Tambala of dream-pop duo AR Kane. The singer-songwriter Momus, another mayfly signing, describes 4AD as "a coffee table label, with a mild bourgeois aesthetic worldview, which appealed to other tender-minded people". But there was nothing mild about their tenderness. Watts-Russell, who struggled with undiagnosed depression, was far from the only member of the 4AD family with mental health problems. Kristin Hersh of Boston band Throwing Muses is bipolar, and Cocteau Twins's Robin Guthrie somehow made the most beatific music of his career while in the throes of monstrous cocaine addiction.

Many readers craving some light relief will be grateful for Vaughan Oliver, whose artwork often evinced an earthy playfulness at odds with 4AD's solemn reputation: images included bare-breasted flamenco dancers and copulating horses. He was a dedicated hellraiser who liked to snort cocaine off a framed Cocteau Twins poster, inviting friends to partake by asking with a significant wink, "Do you want to come and see some old artwork?" His combination of perfectionism, hedonism and provocation is summed up by his dealings with the short-lived Spirea X. Despite happily blowing £17,000 on an enormous neon logo for a band who only made one album, he became so irritated by them during a meeting that he walked out and was next seen sliding down the office's glass roof, on his belly, naked, on ecstasy.

Oliver aside, rock'n'roll antics were (unsurprisingly) thin on the ground, and Aston's book needs more narrative juice, or reflection, and a great deal of editing. Like a completist fan, he can't bear to leave anything out, devoting pages to the careers of such minor acts as Cuba and Clan of Xymox and endless he-said/she-said accounts of financial altercations. He might have been better off hewing his mountain of interview material into an oral history, or at least losing a couple of hundred pages.

The slow pace also tends to tax the reader's patience with Watts-Russell's hopeless people skills. Every rupture or rejection drove him further into his shell. In the mid-90s, he had a nervous breakdown and retreated from frontline business, becoming, according to one employee, "this vague, shadowy figure, completely impenetrable". He finally sold up for good in 1999 and found peace in New Mexico with his beloved dogs. They, at least, wouldn't break his heart.

In his absence, 4AD continues to be a fine label, with a refreshed roster that includes Scott Walker, Bon Iver, the National and Grimes, but it is no longer the intensely personal brainchild of Watts-Russell and Oliver. Without the generous canvas of 12-inch record sleeves, such captivating aesthetic unity would be impossible now anyway. There's no place in the digital cloud for a label dedicated to crafting artefacts for fans to hold and cherish, an enterprise rooted in the heroic idealism of 80s indie.

Perhaps this book, with its crisscrossing voices airing ancient grievances, is the group therapy session that Watts-Russell needed in the 80s. It's too late, of course, but could it really have been different? The tortured genius is a cliche, but it is one seemingly borne out here. Without these dysfunctional people, we would not have had the exceptional music that inspired and delighted so many; without the despair, no beauty.