Gavyn Davies insisted the BBC had been right not to agree a "behind-the-stairs" deal in its feud with Downing Street yesterday because it had a duty to show it was "not the state broadcaster".
The chairman of the BBC governors told the Hutton inquiry he had been driven by a determination to defend the corporation's independence in the face of "intolerable" pressure from the Government.
He conceded that key evidence undermining some of the claims by Andrew Gilligan, which provoked the dispute, had not been shown to the governors. But he maintained that it was not their role to duplicate the editorial process and insisted they would not back up the BBC management "for the sake of it".
The governors felt they must not do "a behind-the-stairs deal with No 10 which the public will see as a means of taking off the public agenda a matter of legitimate public interest".
He said that the BBC had a prime responsibility not to broadcast anything that was wrong. However, he added: "The public was looking to the board of governors to say to the Government, 'The BBC is not the state broadcaster'. That was very much our thinking and it still is."
In an indication of a likely conclusion of the inquiry, James Dingemans, its counsel, asked: "Was this a case where both sides put common sense and perspective on one side when they were engaged in this dispute?" Mr Davies insisted the governors were "cool headed". By issuing a statement saying they did not question Tony Blair's integrity they were "deliberately trying to cool the atmosphere".
Jonathan Sumption, counsel for the Government, argued that a BBC governors' meeting on 6 July, which endorsed Mr Gilligan's report, had been hampered by the lack of information given to it.
Asked why they had not been told the name of Mr Gilligan's source was, the BBC chairman said it would have been "highly irregular" for the governors to have been told his identity. He added: "Information that's given to 12 governors, and with a lot of other people present, is not likely to remain secret. That's not because the people can't be trusted. None of these people, who are not shy in expressing their opinion, felt they needed to know who the source was and what the source did."
Mr Davies conceded the governors were not told that the reporter's source was not a member of the intelligence services - contrary to Mr Gilligan's assertion. But he argued that it had been more important for them to establish that the source was credible and reliable, and added: "I am happy with the standing of the source now I know a great deal more about Dr Kelly."
Mr Sumption challenged him over an e-mail he sent to governors that said it was critical for the BBC to survive the row without seeming to "buckle" to political pressure, which would damage its public trust. Mr Davies said he stood by those sentiments, adding: "We were faced with such an unprecedented attack on our integrity. I think it was perfectly reasonable for me to take the view that the public would look to the governors to stand up for the independence of the BBC."
Mr Davies argued that the BBC's governors did not seek to echo the work of its management and journalists. He said: "The board of the BBC cannot operate unless it is in a situation in which it can rely on the good faith and competence of its officers. I'm absolutely certain that it can."
Mr Sumption said the governors were "put in a position where, for sheer want of information on the points, they had no alternative but to accept the views of the executives, although those executives had dug themselves firmly into a position". Mr Davies retorted that they were presented with a "great deal of information" and were conscious that Mr Gilligan's claims were closely matched by a report by Susan Watts on BBC2's Newsnight.
He acknowledged that he cut short a discussion that began at the governors' meeting of 6 July on the accuracy of Mr Gilligan's report. Mr Davies said: "That is a very tendentious way of putting it. I felt the discussion was going down a byway which we could not reach a conclusion on."
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