A couple of thoughts speedily spring to mind.
Firstly, we have only limited ability to actually measure merit. As I have observed before, performance depends on a wide range of factors, most of them to do with situation and context, only a few to do with ability, attitude and aptitude.
Secondly, self-selection plays a strong role; as you get near to the top of an institution, certain personality types start to become more common, and man-management becomes harder. Self-serving decision making is by no means ubiquitous, but it is certainly more likely, and it becomes harder to trust the information being reported and the decisions being made.
This issue is really just a corollary of the Peter Principle writ large, and avoiding it is a non-trivial problem, but there are a couple of wrinkles worth exploring.
Different types of institution attract different personalities, so the flavor of the problem is different in different institutions, but it is particularly prevalent in institutions with a high public profile.
Within any given organization, the incidence and seriousness of the problem will tend to increase over time. This is partly a product of self-selecting individuals rising through the ranks, and partly a product of the spread of their ideas and culture. It is very hard to create a good, trustworthy culture, and very easy for a good culture to become cynical, jaded and self-serving. It might be worthwhile drawing the analogy between these memes and a pathogen, and thinking about the solution in terms of disease-control techniques.
Given that the incidence of the problem in an organization increases over the lifespan of the organization; increasing churn in the ecosystem, as new organizations and institutions replace old ones, should have the net effect of reducing these problems in the system as a whole.
This is another argument for an economy composed of many small, short-lived organisations and institutions, rather than a small number of large, long-lived organizations, as the damage done by the (relatively) small number of bad individuals is limited, and their malign influence quarantined and contained within their host organization.