The decision to drop a Newsnight report into Jimmy Savile's decades-long campaign of sexual abuse plunged the BBC into "chaos and confusion", revealing a corporation where "leadership and organisation seemed to be in short supply", according to a review by former Sky News executive Nick Pollard.
One senior executive has resigned in the wake of the report, with several others shunted aside into new roles.
Among the evidence in the report is an email sent to former director-general George Entwistle, two years before he took the top job, telling him an obituary for Savile was not done because of "the darker side" to his life.
Mr Entwistle told the inquiry he had not read the email, which Mr Pollard said indicates "there was knowledge, not just rumour ... about the unsavoury side of Savile's character" in BBC television shortly after his death.
The review, which cost around £2 million, paints a picture of a top-down organisation beset with rivalries and faction fighting.
The BBC's management system "proved completely incapable of dealing" with the issues raised by the axing of the story and "the level of chaos and confusion was even greater than was apparent at the time", it said.
"The decision to drop the original investigation was flawed and the way it was taken was wrong but I believe it was done in good faith. It was not done to protect the Savile tribute programmes or for any improper reason," Mr Pollard said in the report.
The review was published at the same time as another review by the BBC Trust concluded that airing a Newsnight report leading to Lord McAlpine being wrongly named as a paedophile resulted largely from a failure by members of the team to follow the BBC's editorial guidelines.
Stephen Mitchell, who has now resigned as deputy director of news, was criticised for removing the Savile investigation from a list of the BBC's potentially difficult programmes, known as the "managed risk programmes list". The executive "could offer no convincing reason" why he had done so but if it stayed on the list, "some of the issues which have followed might well have been avoided", the report said. Mr Mitchell said he disagrees with the report's criticisms of him.
The BBC also announced the replacement of Newsnight's editor and deputy editor and said Radio Five Live boss Adrian Van Klaveren was moving to a new role after he was held responsible for the flawed McAlpine broadcast. BBC Trust chairman Lord Patten said the BBC accepts the review in its "entirety" and all the evidence would be published, apart from some redactions for "legal reasons".