They have basically allowed the worst elements of their community to dominate and manipulate their most valuable properties (the subs belong to Reddit, and when a bad mod team ruins a sub that hurts Reddit more than anyone)
Reddit corporate has also ruined small communities and directly allowed this kind of power mod takeover via minimum activity rules.
The vanity of reddit made it possible that some of the worst people became mods. It was mostly some random pretext to throw people out of their own communities and many of them aren't around today anymore.
Powermods shouldn't even exist, maybe restrict mods to 1-2 subs. This would at least reduce very likely the vast amount of low quality moderation decisions.
But in the end I don't even believe this is fixable. New mods are rarer because the platform is mature. Of course you still can create niche subs, but those are in danger of being captured as well.