A CEO can only act on information they have. Primarily directives are carried out by being followed down the chain. By not following something the CEO felt was important, the employee (manager is this case) is creating a problem. First they are ignoring desired direction. As a person in a management role, this basically means that they are not doing their job. Second, they are demonstrating that following direction doesn't matter. This was a serious issue for the CEO and it had to be dealt with.

The executive should have been made aware that this was an issue or fired, not threatened. That was a stupid move. If you have to threaten your employees, you have already failed as a leader.