|Taking this type of action makes sense if the executive vice president is interested in generating dissatisfaction, ill will, and an unhealthy dose of distrust. An employee's title has a very strong psychological impact, to the point that research shows that some people are even more interested in titles than pay.|
While it makes sense to have titles that are representative of the jobholders' responsibilities, there is very little to be gained by changing a title from "director" to "manager," especially if the director has managers reporting to him or her. Presumably those people would then be called supervisors, and so on down the chain.
There are even compelling motivational reasons to actually use somewhat inflated titles. People feel better about having them, and they can even expect more out of themselves because they hold such titles.
The executive vice president is certainly entitled to his opinion on titles, and as new positions open up, perhaps the titles can be adjusted for the new hires. However, taking away employees' titles is a random act that is not going to have a random outcome.