Graham is actually discussing Apple's broken iPhone app approval process, but I thought the following was so true in a general sense it was worth repeating …
An organization that wins by exercising power
starts to lose the ability to win by doing better work. And it's
not fun for a smart person to work in a place where the best ideas
aren't the ones that win.
And as Graham points out – it's not just the smart people who are leaving that hurt an organisation, it's all the smart people that never came in the first place.