This is an easy thing to say, but I can understand why a leader would choose to do otherwise. The risk that employees will give up and bolt thus turning failure from a likelyhood to a certainty are very real. You can't just ignore that.
I prefer to be a leader that promotes respect and care for employees, and assume the former choice is thus a better one.
But I sure haven't. And I look at it and I see a 10 out of 10 management challenge. You've got the weight of the world on your shoulders as a leader here. The lives of your employees, the faith of your investors, the very life of a company you've put your all into for years. And in this case the CEO was a first time founder with (rumor has it at least) not a lot of support from her board.
Maybe she did the wrong thing. Maybe she didn't. But this shit ain't easy, and I'm not one to judge too harshly.
Thanks for the comment about board support, harryh. There is another angle to this, which is that the investors / board should also be there to provide support / help as necessary. If they didn't do so, that is also very unfortunate.
Of course, that is not to absolve these startup founders for all their wrongs, I just think we really should hold the big folks like Jobs et al. accountable for the shit they do before we start piling up on these young and inexperienced founders.
If your company's in that position, the only ethical thing is for all employees to be well-informed of that, in advance.
1. I am not gonna be transparent because hey, emloyees can bolt.
2. Oh, I effed up.. let's fire them all in cute little email w/o notice.
Yeah, that's great!