You're talking about "participatory management". It was a fad in the 50s that comes up again from time to time. It sounds like a good idea, but it actually ends up increasing bureaucracy. There's a good article that discusses exactly what you're talking about here:
That essay is hilarious, it explains all these failures of companies doing participatory management half-assed, provides a few successful counterexamples of companies/divisions/plants that did it full-assed, and then concludes that the failures failed because they didn't take the changes far enough.
http://www.maccoby.com/CHeckscher/Articles/LimitsPartMgmt.sh...