It's foolish for the founders' part as well. They were wasting their programmers' time and effort as well. When I'm interviewing candidates, it's time that I'm losing. Why waste it on candidates who won't work for the salary?
Based on my experience, I'd say what happened here wasn't a deliberate decision on the part of the founders but rather a product of disorganization / disfunction in the company - probably recruiting has no incentive to avoid this type of thing, the engineers actually doing the interviewing don't have clear authority, and the higher ups don't want to take ownership.
