I agree it was not nefarious, but it was a decision that shows unbelievably poor judgement, especially for a CEO. I'd be surprised if he keeps his position. He's undermined his fundamental role as the leader of one of the biggest social media sites by violating the trust that users put into the site's administration.
The context as I understand it involves some ravenous hordes of conspiracy-theory redditors promulgating fake news stories and doxxing innocent people. However, by changing the text of these users comments, whatever their actions, and by admitting to it, Steve has opened the floodgates. Now there is no question -- in the minds of these users -- that the site is truly "against them" and willing to not only censor them but to rewrite history as they see it. They can no longer trust anything they read on the site.
But what is worse is the effect and message this sends to normal users. How can, for instance, any person safely participate in an AMA now? When the real possibility exists to have their words changed out from under them, and no way to prove they aren't in fact the author? And from that, why would anyone post anything potentially personally identifiable, if (in their mind) some disgruntled admin could modify what they said to include false yet humiliating or criminal things (e.g., throw in racial epithets, link to porn, admit adultery / drug use) that might eventually link back to them. And how far does this go? Can admins send PMs under the name of other users? What else? To me at least, the scary thing is that Reddit posts that only obliquely reference personal information have already been used as the basis for surveillance and legal action [1]...
And taking one final step back, from a business side this drama goes beyond just being unprofessional. Reddit posts are now often linked to from news articles. How can the media trust the source they link to? If the content of posts are 'up for grabs' to be edited by admins in the minds of users and the media (even if they aren't in reality), then one of Reddit's functions that is growing in importance -- that is, news-making -- may be stymied.
Harming trust is extremely dangerous for social platforms. And when it is the CEO themselves doing the harm, it could very well border on being suicidal for the site.
[1] https://np.reddit.com/r/AskReddit/comments/58hae4/what_is_a_...