Rapper Stormzy reportedly threatened to quit his record label after a picture circulated of the label's president wore 'blackface' to a staff fancy dress party.
Atlantic Records UK president Ben Cook, who is also credited with launching the Ed Sheeran's career, said the costume idea had been a 'terrible mistake'.
Mr Cook simply admitted his 'appearance was offensive' after he turned up as a member of Run-DMC for the party, but he did not elaborate further.
However, a source in the music industry told the Daily Mail that Mr Cook had worn blackface at the event.
Rapper Stormzy is said to have told senior figures at Warner Music, the parent company of Atlantic, that he would quit if Mr Cook was not fired.
'Offensive mistake': Ben Cook, centre, with Ed Sheeran, right, rapper Cardi B, left, and A&R worker Alec Boateng, far left
Rapper Stormzy reportedly threatened to quit the record label over the row
A source told The Sun Stormzy was 'furious' Mr Cook was initially allowed to stay over the controversy.
'He stepped in and made it clear he would not be prepared to keep working with them if Ben stayed, and also that he might go public with the details of why,' the source said.
'He absolutely believes this was the right thing to do.'
All three members of Run-DMC were black and Mr Cook is white. The party he had attended took place seven years ago but the picture only came to light last year when a picture of the president appeared on Facebook. The photo was then swiftly deleted, the source claimed.
They added that the label president had since been shunned by some music industry colleagues, including rapper Stormzy who banned him from standing near the stage during his Glastonbury performance.
Mr Cook was at Atlantic for 12 years, first working at the label's sister company Asylum Records, where