I've been following this thread lucky girl, the comment from your 6 year old grandchild prompted me to comment. My parents didn't smack, they were born in the 1920's and often commented that their own parents were unusual in that generation, in not having a strap hanging behind the door, in readiness for chastising children.
I don't believe this man either understands or cares about the impact of his behaviour on others, particularly on children. I'm sure you recognise the personality type and accept he won't change. I empathise with your daughter and sil as they try and build their business whilst, it seems, locked into some kind of working relationship with him.
As a child of 8, I was present when my uncle made his 3 boys take their pj's off, lined them up and slapped their bottoms as all 3 boys cried, screamed and trembled with fear. I was "rescued" by my dad. Despite this happening almost 60 years ago, it immediately came to mind when I read your OP. It's a relief to read that your 6 year old grandchild has talked to his mum about the incident. Whatever else happens, it seems to me that the children need a clear message that this incident was wrong and won't happen again.
What a rotten situation.