It sounds like its only affecting performance because the employer has chosen to make it affect performance. Look at all the comments from people saying if the boss doesn't fire the employee (perhaps because its not affecting performance) they'd quit because the boss has no backbone. Where's the job performance related justification for that?

What part of people leaving a company on account of the breach of trust between a co-worker and the boss, and the related loss of institutional knowledge and incurred replacement recruiting costs, don't constitute a business impact.

It's not necessary for the impact to be on the productivity of the employee whose behavior is in question. Say, an employee starts showing up at work in tactical combat gear with various hate slogans put up around their workplace and on their car, which make other employees understandably scared. Or sexual harassment creating a hostile work environment for others. In neither case would the offender necessarily be the one whose productivity is impacted. I'd support termination in either case, however.