The story of the Norfolk State professor fired for failing too many students (see IHE's story here) is a kind of inkblot test. My own reaction is conflicted.
At Proprietary U, similar things happened. The registrar's office gave every dean a weekly printout of drop/fail rates for every section taught in a given semester, ranked in descending order, with faculty names attached. Faculty who routinely made the upper levels of the list were problems to be managed; if they failed to change, they were to be dismissed. Although seldom verbalized, the theory behind it was twofold. First, there was the obvious financial interest in keeping tuition-paying customers from dropping out. I wasn't thrilled about that one, but there it was. The second was a bit more subtle. Since curricular options there were relatively few, any given course usually had multiple instructors. If one instructor's grades were wildly out-of-line with everybody else's, there was probably a reason. Since students shouldn't be punished, in effect, for having the 'wrong' instructor, the idea was to make sure that everybody who took, say, College Algebra had a roughly similar chance of passing, regardless of whose section they took.
The first reason was just a cold fact of life in the for-profit sector. Some of us regularly argued that any fiscal gains from lower standards were sure to be short-lived, since the real selling point of the college was employability, and if we start turning off prospective employers by graduating incompetent people, our placement rate would plummet. But that tended to get limited traction, since graduate placement rates rode economic waves to such a degree that concerns over quality control seemed like niggling.
The second reason was harder to shake off. If you get the tough grader and your friend gets the easy one for the same course, similar performances could result in dramatically different grades. Transcripts don't come with asterisks for this sort of thing, so a student who had Cruella de Ville for English Comp has a legitimate claim to unfair treatment. In the interest of fairness to students, I think colleges have a positive duty – not just a right, but an actual duty – to take reasonable steps to ensure that standards are tolerably similar across sections. (Usually the best you'll get is some variation on “given random distributions, it will come out in the wash,” which isn't terribly satisfying.) If a single professor insists on being an outlier, despite repeated warnings and efforts to engage, then there's a legitimate performance issue.
(Before the inevitable flaming, I'll say that I don't know how much of that – if any – describes the Norfolk State case. From the IHE article, it sounds like many other issues are afoot, including the dreaded 'hidden standard' that differs from the written standard. To my mind, that's an obvious wrong. What I'm doing here is not defending the dean at Norfolk State; it's trying to understand why a college would have a legitimate reason for concern about grading outliers.)
All of that said, attention to grades should absolutely cut both ways. Back at PU, I had two professors who routinely gave 90 percent or more A's, and the rest B's. One of them was an astonishingly gifted teacher who had a way of making difficult material seem obvious. The other, well, wasn't. He wasn't awful, but he wasn't anything extraordinary. I treated his promiscuous grading as a performance issue, since it undercut the other faculty's efforts. With the gifted one, I took the grading as a fairly accurate barometer of high achievement, and didn't worry so much.
This is an area in which it helps to have administrators with actual teaching experience. Anyone who has taught for a while knows that students fail or drop for many reasons, most of which have nothing to do with the instructor. It's also the case that different courses often have different drop/fail rates, and should be read accordingly. It's not unusual for students to need multiple tries to pass, say, remedial math. On the other hand, if half the class fails the senior seminar, something is wrong. That's not to deny the very real need to find more effective ways to remediate, but just to offer some context.
It also helps when you have common departmental final exams for intro courses. Since course grades are usually the sole province of the instructor, in a setting in which drop/fail percentages are scrutinized, a professor could easily game the system by curving or lowering standards. But if you have, say, a dozen different people teaching General Psych, and one professor's students always crash and burn on the common final exam relative to everybody else's, then you have a pretty good indicator of where you need to look more closely. Having some sort of external measure can help you get around the 'conflict of interest' issue.
Whether surprisingly or not, this issue really hasn't come up at my cc. There's enough awareness of the importance of degree transferability – and employability – that we really haven't encouraged laxity. As a non-profit, we have that luxury. (We don't have many luxuries, but we do have that.) And as a left-leaning sort, I like the idea that a kid without the money to 'go away' to college has access to the same academic rigor as the kid with rich parents. A former colleague of mine used to say that algebra is a civil right, and I agreed with him. To offer the less-well-off a diluted product offends my egalitarian sensibilities. If we're serious about access, it has to be access to academic rigor. Otherwise we're just babysitting. The rigor should be fair and impartial, and we need to explore the right mix of support services, tutoring, and the like to help students succeed, but that's okay. At the end of the day, the best service we can do is to provide a truly higher education, even if it takes some doing. Which it does.