There are various definitions and aspects of “good governance” found in the literature. According to Governance International, UK, public governance is how an organization works with its partners, stakeholders and networks to influence the outcomes of public policies (Loeffler 2009). The White Paper on European Governance stresses five principles that underpin good governance – openness, accountability, effectiveness and coherence. Peda (2012) stresses that the availability of the performance-related information plays an important role in aligning governance actors’ interests through established governance mechanisms. There are multiple reasons to measure performance and produce performance information (Behn 2003; Cunningham and Harris 2005), whereas Peda (2012) points to the need of having also a process for using the performance information.; Tthe main distinction in using performance information can be made between performance reporting as an accountability tool and performance management as a steering tool (Greiling 2006). Over two-thirds of OECD countries include non-financial performance information in their budget documents (Curristine et al 2007).
According to Estonian legislation Local Governments in Estonia currently have to compile strategic plans, prepare the annual budgets in accordance with the strategic plans and disclose non-financial performance information in relation to the strategic plans in their annual reports. However, this information has to be integrated into the budget process, in order to have a complete performance management system (PMS) (Curristine et al 2007). According to Loeffler (2009) and Bovaird and Loeffler (2002) in order for local governments to move toward local governance they needs to consider governance as a process of interaction and therefore consider also:
• Introducing long-term plans and asset management for the whole community
• Publishing of performance information based on the needs of stakeholders in the community
• Involving stakeholder groups in the definition of performance standards and measurement of performance against results achieved in other communities
• Encouraging innovation and learning at multiple levels
The elements of local governance described reflect the idea of the PDCA (Plan-Do-Check-Act) cycle (Deming 2000). The financial management model of Estonian public financial management was originally built on the idea of the PDCA-cycle (Ülevaade tulemuslikkuse… 2010) and already several aspects of this cycle have been incorporated also in the legislation concerning the financial management of local governments. Estonian local governments currently have an obligation to compile strategic plans, prepare their annual budgets according to their strategic plans and report performance against targets in their annual reports in order to...