I'm at a SLAC. Here are a couple of reasons that the institutions want this. 1) Teachers should know more than the students. The degree quantifies that. 2)

I'm at a SLAC. Here are a couple of reasons that the institutions want this. 1) Teachers should know more than the students. The degree quantifies that. 2) The highest-rated SLAC's have PhD faculty, and so the next-highest aspire to that. One way this is concrete is that the accrediting agencies put as a point they look for that all faculty have a terminal degree. And people looking at colleges want to go to the highest-rated places (subject to monetary considerations), so it is a major factor in enrollment. 3) It helps keep you alive, and your teaching reflects that. This third one can sound a little BS but in my experience having a professional activity as a creative output definitely helps keep people from becoming toasted.