The problem with such a culture of fear is that the Good Ones(tm) take it as a hint and jump ship; as they're good, they have no trouble finding a job and leaving. But the Mediocre Ones(tm) know that they won't be able to find a comparable job, so they bring the knives out and it becomes a Lord of The Flies situation.

Thus the company gets hurt 2 ways: good ones leave, and bad ones stay, making the lives of everyone else miserable.