Covenants and Covenant Charters are essential narrative Ars Magica concepts. I doubt, though, whether the ArM5 rules to create covenants are similarly essential. Narrativist approaches - like from FATE - to define a covenant might be more appropriate, combined with guidance for the anyway necessary research of the covenant's place and history.
(EDIT: This change may be of interest for a revised ArM5 core rule book.)

I would suggest that the problem is not "powerful wizards" in itself but "lots and lots of powerful wizards, joined together into an organized society". If we discard the Order of Hermes and reduce the prevalence of magi then we get a setting that I find much more believable. In a way, it's even a return to the roots of AM first edition, before the Order was invented.
20 powerful wizards can be just as bad as 400 or 2000.
The issue is always,
(1) to have them credibly block each other's schemes to rule and change Mythic Europe,
(2) while the player magi plan to break that stall.
For this, both the Oath of Hermes and the Order of Hermes are essential, and extremely hard to replace by a credible alternative.
(EDIT: So, this needs to be kept in a revised ArM5 core rule book.)

The Houses/splats were a great concept when they were introduced and I still treasure my copy of 2nd edition Order of Hermes but the idea has run its course by now, especially considering the vastly improved level of historical authenticity in recent AM5 publications.
The Houses serve a double purpose: they help players to define their characters, and storyguides to embed these characters into the society of the Order of Hermes. They are simplistic, and most defy even superficial sociological analysis. But they would have to be replaced, not just done away with.
(EDIT: Leaving most of the Houses to the HoH: books, and adding in a revised ArM5 core book other means to define player characters and their relation to the Order, needs to be discussed more in detail yet.)
Cheers
EDIT: I just see that David Chart (in Familiars from the start) has suggested to redefine the scope of this thread.