I've never done them either, as an interviewEE, however our agency does them all the time with prospective new employees.
I think for our agency it serves a number of purposes:
1) it reflects the coziness and informality of our work style...we're always chewing things over together, using each other as sounding boards.
2) it offers employees a chance to feel included in the decision-making of the hiring process.
3) it offers management input from the trenches which I'm sure can be helpful.
Just my 2 cents, FWIW...I'm sure there are MANY different styles / approaches to group interviews.
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