I feel like demotions is something most western companies wouldn't do. And I actually think that's a real problem. (Especially when it's BioWare). However I also get that it's Japanese culture to demote someone make them feel miserable and so they quit on their own rather than being fired, which I've read is a common strategy due to legal reasons. So no winners.
If it wasn't for that, I also get the stigma of being demoted, like you're a director, your teams look up to you and suddenly you're told "no, you aren't good enough, start designing levels with the rookies again" but honestly if you ever were to hope for a genuine meriotocracy, that's how it should work. That's also why more flat structures are better, where no one is seen as the "better guys", but then you wouldn't have a director and... I'm rambling but look, company development is hard and IMO in an undesireable place on both fronts.