"Having run this “proxy” process for years now, I can tell you it is, in fact, the most accurate indicator I have seen of software engineering capabilities."

Genuine question; how do you know? Presumably you have some good feedback on the accuracy of your process when you hired the candidate, but do you have any measure of how accurate your process was on the ones you turned down? I'm sure some of the ones you turned down would have been bad hires, but some would have been good hires; is there a measure of that?