Then someone would show this arrangement to a judge who would order the executive who approved it to be placed in prison. Circular ownership is not allowed in many jurisdictions.
For example, something like a pooled company that exists to provide this service for dozens of corporations thereby meeting ownership dilution requirements to avoid triggering circular ownership statutes.
Corporate tax lawyers are bright (a well-deserved compliment). Someone would figure out how to hack it. And then the well-intended hypothetical law would just put money into the pockets of lawyers and accountants at the expense of shareholders. It'd sound great on a campaign trail but be stupid in practice.
That's the point of the judge.