In my experience, one of the reasons teams end up quitting like this, is the hopes that it sends upper management a signal that "this guy is no good". Turnover has tremendous immediate and long-term impact on the bottom line. I guess the hope is that upper management will swoop in, fire the crappy manager, contact out all the about to leave/left employees and put them back in their jobs.
But it never seems to work that way. I think it's more a fear that if you bring them back, it gives the inmates a reason to revolt rather than the signal getting lost somewhere.
My wife went through a similar situation with a manager two levels above her. And this guy was easily among the worst managers I've ever even heard of -- case study worthy material, the textbook definition of a Machiavellian management style (it's funny that he also runs a management consulting business on the side). Within months of him being put in place the company shed about 40% of their staff under him, including people who had been there more than a decade.
While all this was going down, his manager would come down and talk to the malcontent and implore them to not leave. But the condition was clear, get rid of the asshole or they'd have no choice. As it turns out a few months later they did eventually fire him, but the damage had already been done and not a single former employee was contacted with a "hey sorry about all that, we fixed things, would you think about coming back?" From conversations with those that left, most of them would in fact return.
In the interim, they've lost tens of millions of dollars on failed projects, outside consultants to try and fill in the gap, and other related issues.
From the employee level it seems bizarre, but the only rational explanation I can think of is that they're afraid of bringing people back and thereby granting them too much power. Somewhere in management training, the seniors probably learned that "officers don't show weakness in front of the men" and have been holding to that at all cost.