This paper argues that firm efficiency and stability, as well as workers’ satisfaction, can be achieved through participatory decision–making rules. It offers theoretical rationales and empirical illustrations based on the framing and operation of European works councils. Employees should take part in establishing the rules; otherwise managers will make rules that allow them to retain control of the key points in the decision–making process. In constructing such rules the involvement of unions is required; however, once rules are set union activity becomes marginal. Government intervention remains marginal throughout.