So a lot of times those C-levels will be pretty average people eh?

The best and brightest in an area for the pay the companies are willing to pay is not the same as the best and brightest (you are adding a lot of constraints). A lot of times those people will be quite average (or mediocre). By definition, most people are average or close to it. If a company is not willing to pay to attract and retain the actual best and brightest (as many will not), they are left with mediocrity. The companies will often still be able to make a lot of money, because companies in general do not need the best and brightest just to avoid failure and bankruptcy.

Will once innovative companies become worse companies and provide worse services/products? Absolutely. Will they be left behind by better companies who do attract the best and brightest? Sometimes, depending on the industry and the depths of the moats they have built and the number of aligators guarding their monopolies (e.g. regulatory capture and other monopolistic behavior). Will they go bankrupt? Sometimes, but in general it takes more than to just settle into a mediocrity.