Davies falls on his sword to become first casualty of a damning report

Five years ago, when Gordon Brown wanted to resolve his feud with Peter Mandelson, he chose as the venue for the "ceasefire meeting" the south London home belonging to Gavyn Davies. When the Chancellor was hunting for a page boy and a bridesmaid for his wedding a year later, he chose Mr Davies's children. And when Mr Brown was looking for someone to run his private office, he plumped for Mr Davies's wife.

So it came as little surprise that Mr Davies, 53, a multi-millionaire thanks to his career with the investment bank Goldman Sachs, should be appointed chairman of the BBC in 2001.

What was surprising was that he should become the corporation's first casualty of its war with the Government.

But there is every chance that he will be the first of many to leave the BBC in the wake of the Hutton report which could hardly have been more scathing in its criticism of the BBC's behaviour since its journalist Andrew Gilligan made his fateful appearance on Radio4'sToday programme. There is even speculation that tonight's emergency meeting will see the governors walk out en masse.

Mr Davies did not go quietly. As he left, he made clear his doubts about Lord Hutton's verdict. "Is it clearly possible to reconcile Lord Hutton's bald conclusions on the production of the September 2002 dossier with the balance of evidence that was presented to him during his own inquiry?" he asked.

It is unlikely Mr Davies's answer is in the positive. Six months ago, he emerged from a crisis meeting of the BBC's governors, after questioning Mr Dyke and the BBC's director of news Richard Sambrook for two-and-a-half hours.

The attack on Mr Gilligan's report about the Iraq dossier was, he said, merely the latest episode of an anti-BBC campaign co-ordinated by the Prime Minister's then director of communications, Alastair Campbell.

Mr Davies said: "The board reiterates that the BBC's overall coverage of the war and the political issues surrounding it, has been entirely impartial and it emphatically rejects Mr Campbell's claim that large parts of the BBC had an agenda against the war."

It was, broadcasting insiders explain, the blunderbuss nature of Mr Campbell's numerous attacks against the BBC that led to Mr Davies dismissing his complaints against Mr Gilligan's report out of hand.

Mr Davies said in his resignation statement that "intemperate" criticism from Mr Campbell "undoubtedly scrambled our radar screens at the top of the BBC".

A further factor is mentioned by BBC staff: that the cronyism allegation was considered so hurtful that Mr Davies saw the need to display his independence, and that of the corporation, from the Government in the most macho terms.

Mr Davies, whose fortune is an estimated £150m, will not miss the £80,000 salary his four-day-a-week BBC job paid. He is a former economics commentator for The Independent and is notknown for his animated enthusiasm, although he was seen a few months agotapping his foot at an Elvis Costello concert.

The mood at the BBC was a mixture of shock, bewilderment and anger. The surprise was visible. The news presenter Huw Edwards said Lord Hutton's report was "better than the government could have hoped for and worse than the BBC could have feared". His verdict was echoed by the political editor Andrew Marr who said: "I don't think anyone [at the BBC] expected this report to be quite so damning."

The BBC had predicted criticism - albeit not on this scale. That is why it had launched a pre-emptive campaign to limit the fallout from the Hutton inquiry.

Lord Hutton published for the first time evidence submitted to him by the BBC a fortnight after he drew his official proceedings to a close.

The 70-page document was clearly designed to protect the position of the director general Greg Dyke. It made clear that Mr Dyke, who is also the BBC's editor in chief, could not have been expected to know the errors in Mr Gilligan's report before it was broadcast. Mr Dyke accepted responsibility for the report, but that did not mean that he "could or should" have known before transmission that it contained errors.

The corporation recently announced that any reporter with a controversial story - preferably transcribed in full in his or her notebook - will have to ensure it does not clash with complaints and compliance procedures being drawn up under the aegis of the newly appointed deputy director general Mark Byford.

Mr Byford, the head of the World Service, has been insulated from the Gilligan affair. He is now in charge of ensuring his senior lieutenants do not dismiss complaints out of hand.

Anecdotal evidence suggests that producers are no longer happy to use unscripted two-way interviews on the most controversial stories.

All things considered, yesterday was not the best moment to be a BBC journalist having to report on what was undoubtedly one of the worst days of the corporations history.

It is, therefore, to the credit of June Kelly, the BBC New 24 correspondent given the onerous task of reporting on the doings of her own employers from the pavement in Portland Place outside its Broadcasting House headquarters that she was able to do so such professionalism.

For several hours yesterday afternoon she conducted unscripted two-way links with her studio presenters, dealing smoothly with a developing story and braving the weather. It was done so under the gaze of her media colleagues, who were treated to the spectacle of watching the BBC report on itself outside the BBC headquarters where the live coverage of Ms Kelly and others was being relayed on a huge screen into the BBC lobby. Rolling news has never seemed quite so bizarre.

It was the kind of professional reporting that once gave the BBC a good name and presumably not the kind that Lord Hutton had in mind when he said the BBC had broadcast unfounded reports, unchecked and then defended by a "defective" management. These were, after all, Ms Kelly's colleagues and superiors whose mistakes she was now reporting with such detachment.

Meanwhile, the corporation was broadcasting the repeated calls of ministers, ex ministers, MPs and Alistair Campbell, for BBC heads to roll.

The head that did roll left the corporation telling BBC staff that "they must let themselves feel no shame about the Hutton report. No one at the BBC in the past year has deliberately misled the public and no-one has acted out of malign motivation."