This is probably how it started — have the candidate work through a problem and use that as a basis for discussing algorithms, data structures, and get a good idea of their foundations. But only one interviewer needs to do this. Others should focus on evaluating other aspects of what it takes to be a good programmer.
Unfortunately in some companies most interviewers do this. It’s a lazy form of interviewing because the interviewer can literally look at the resume to pick up a few facts off the resume (name, current employer etc) 5 mins before the interview and don’t need to actually understand the candidate’s background and skills.
It’s like a lot of other things in corporate environments — most people mindlessly accept the existing structure and do their bit to perpetuate it instead of reasoning from first principles to determine if the existing system makes sense for this candidate and position.