I like the concept behind this change. I hope it is "sped up" for beta, and specifically focuses on Power ranking. If you don't participate often, your influence within that Power will fall. If you want to defect from high rank, just go out exploring. Defect once you've lost status so the penalties are less. That makes sense.
It also makes sense to a degree for Minor Factions, however, there should be some actions that overwhelm or delay the degradation of your reputation. Like someone said earlier, you don't forget your local heroes that quickly. (For that to really work, we need to have missions that let us be local heroes, and not just traders or bounty hunting scum.)
Major Faction and naval rankings should only degrade due to action, not time. That said, if you defect to the pirate faction of the galaxy, both navies should be upset by that. Of course, the federal rankings feel military and merit based, but the imperial rankings are more like landed aristocracy. Sure, those could be stripped, but there should be a really good reason.
