Stardreamer No, we did not address people in senior posts formally. The ethos where I worked was for first names to be used at every level.
I can think of no reason why not addressing people formally should lead to problems. Senior staff gain the respect of their staff by the way they do their work, regardless of what they are called.
Wherever I have worked, even in the most formal of offices, there were senior people who were held in contempt, by their juniors because they were either incompetent and/or behaved badly to their subordinates.
This particular man would have been held in disrespect, whatever we called him, Dr Smith, Peter or even Oi, you.