Chief Executive Donald Tsang Yam-kuen has been caught between a rock and a hard place in trying to resolve the dispute between the KCRC's senior management and staff and its chairman.
Caught off guard over the grievances against Michael Tien Puk-sun, the stakes are high if Mr Tsang rejects Mr Tien's offer to resign. Doing so could put him in a difficult, adversarial position with senior managers and staff.
Worse, the government runs the risk of more uncertainty over the rail company's operation and staff morale in the medium term even if the crisis quietens down. Put bluntly, the damage to the working relationship and, more importantly, mutual trust is done.
Accepting Mr Tien resignation, however, could set a precedent with profound implications for the functioning of independent statutory bodies and their relationships with the government.
There is no doubting the unique background of the power play between senior management and Mr Tien. This has to do, in part, with the character and style of Mr Tien and the effect on the management team led by KCRC acting chief executive Samuel Lai Man-hay.
Any decision by Mr Tsang to accept Mr Tien's resignation will be interpreted as a government climbdown under pressure from the management and staff of a statutory body. From the government's point of view, Mr Tien has ostensibly done nothing seriously wrong that warrants a resignation. Some callers to a radio phone-in programme yesterday praised his efforts in promoting the KCRC's transparency and accountability.
If he ultimately has to leave his post in disgrace, it may scare the elite from taking up government appointments in particularly tough jobs. It will also cast a shadow over the administration's commitment to make public bodies more transparent and accountable.
After the row erupted last Thursday, it is now clear the government tried to distance itself from the confrontation. As soon as Mr Tien took the initiative in offering to resign, and announced his decision at the weekend, Mr Tsang had no choice but to step in to try to find an all-win solution.
Following the exchanges between Mr Tien and Mr Lai in the public spotlight over the weekend, the room for manoeuvring and flexibility has become severely limited, if there is any at all.
It is no surprise Mr Tsang has remained non-committal over Mr Tien's fate, hoping that time will narrow the gulf between him and Mr Lai for them to see if there is any room for further co-operation.