Intimidation
The old-school method of management by fear and intimidation is not only counterproductive, it can also be a liability: there have been a number of successful suits filed by employees who felt that this was a form of harassment, so much so that companies are on guard against it, and may refuse to promote (or even dismiss) managers who are too hard on their subordinates.
In many instances, intimidation can be unintentional: managers and executives may intend merely to express disagreement with an idea expressed by a subordinate, or may have a legitimate reason to criticize, but the manner in which they do so is detrimental to morale. Even something as innocuous as standing too closely to someone can be intimidating. It's often a number of "little things" rather than a major blow-up that create an atmosphere of hostility.
In general, people respond better to a superior who is empathetic, who seems to value them, and who considers their interests. This is what the author means by "goodwill."
Beyond effectiveness, it also contributes to your own credibility: a person who is perceived as being hard on their subordinates is seen as a cruel and untrustworthy person - and when it comes to reputation, the opinion of one's subordinate is critical.
A Labor Lawyer's Perspective
From a legal perspective, there are very specific topics that can provoke a lawsuit: age, race, gender, disability, ethnicity, religion, marital status, sexual orientation, veteran status, and lifestyle are all protected groups, and even an innocuous comment can be taken as harassment.
Moreover, discrimination is subjective: it's more about what one person feels than what another person intended, and the ultimate decision is often made by a jury, based on emotion rather than reason.
The author cites a number of screwball cases that actually won: a cosmetics manufacturer who only hired attractive sales reps, a boss who gave preferential treatment to female employees, a boss who hung a nickname on a subordinate because he couldn't pronounce his ethnic name.