As I read points 1-3, I kept thinking "how do you fire someone very high up in the chain of command who is careful enough to never make a fireable offense and is also important enough that customers will raise eyebrows (e.g. CTO of a tech company or CFO of a finance company)?"
Then I read:
> 4) The other choice is firing everyone.
When you look at it this way, rest of the reasons don't really matter. It is indeed possible for just one person to bring down them morale of their department, direct reports, or immediate team members. That in turn infects the rest of the company over time, slowly lowering the bar for performance, quality, and enthusiasm. And that can most certainly bring about 4) in the not-too-distant long term.
For people who's departure causes significant external ripples, it's never really couched as firing though, is it? There is a carefully coded message (perhaps even internally) about departing for other startups as yet unspecified, or of pursuing different opportunities or of spending time with the family.
In many cases, will we even know if it was mutual or just an understandable need for a change of scene? Contrast the departures of Bret Anderson from Facebook, Naveen Selvadurai of Foursquare and Marco Arment from Tumblr [and these are just CTO/co-founder examples]
That's true, but firing one person can also cause surprisingly large problems for morale, depending on the person and circumstances. The classic case is the underproductive but friendly and intelligent person who has a good rapport with everyone in the office, good answers/comments in discussions with coworkers, willingness to do miscellaneous odd jobs and help people out, etc. Axing that person can depress the mood around the office and cause others to view management as harsh, especially if they had a higher estimation of the person's productivity than management did.
The classic case is the underproductive but friendly and intelligent person who has a good rapport with everyone in the office, good answers/comments in discussions with coworkers, willingness to do miscellaneous odd jobs and help people out, etc.
In that case, I'd question if that person is truly unproductive. More likely management just doesn't understand how to properly value their actual role, which may not be reflected by their job title. In that case, instead of firing them, it might be better to either:
A. understand the actual value they deliver and leave well enough alone
or
B. create a new title for them, which reflects the value they produce and then hire somebody else for their old position.
Then I read:
> 4) The other choice is firing everyone.
When you look at it this way, rest of the reasons don't really matter. It is indeed possible for just one person to bring down them morale of their department, direct reports, or immediate team members. That in turn infects the rest of the company over time, slowly lowering the bar for performance, quality, and enthusiasm. And that can most certainly bring about 4) in the not-too-distant long term.