In this paper, we analyze the effect that directors representing controlling shareholders, specifically institutional investors, have on corporate social responsibility (CSR) given that these investors are the core shareholders in civil law countries, owing to their high presence on boards. Thus, we analyze the effect of institutional directors on CSR disclosure, but also the impact of their classification between pressure‐sensitive and pressure‐resistant institutional directors, depending on if they maintain only an investment relationship with the firm or both an investment and a commercial link, respectively. We hypothesize that these directors may perform opposite roles (monitoring or aligning with managers) regarding CSR disclosure. We show a curvilinear relationship between institutional directors/pressure‐resistant directors and CSR reporting, suggesting the two opposite roles mentioned. However, pressure‐sensitive directors do not affect CSR disclosure. These findings indicate that there is an association between board members and strategic decisions. Moreover, our evidence shows that institutional directors do not act in an identical way. Finally, the enhancement of corporate governance depends on the proportion of institutional and pressure‐resistant directors on boards.

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We explore the effect of institutional directors on Chief Executive Officer (CEO) pay (total, fixed, and variable compensation). We delve particularly into the impact of pressure-sensitive and pressure-resistant institutional directors, who, respectively, represent institutional investors who maintain and investors who do not maintain a business relationship with the firm whose board they serve on. Focusing on CEO total pay, the findings show that institutional and pressure-resistant directors on boards behave similarly, affecting CEO total pay in a nonlinear way: as the presence of institutional and pressure-resistant directors on boards increases, the monitoring hypothesis prevails, and subsequently, better corporate governance decreases CEO total pay. However, when their presence on boards exceeds a critical point, the entrenchment hypothesis holds, thereby leading to an increase in CEO total pay. Contrary to our predictions, pressure-sensitive directors do not affect CEO total pay. Regarding the CEO’s compensation structure (fixed and variable), the results suggest that institutional and pressure-resistant directors increase fixed compensation and reduce variable pay, while pressure-sensitive directors affect neither fixed nor variable compensation. This evidence supports the view that institutional directors should be considered as a heterogeneous collective. JEL CLASSIFICATION: G3, G34, M12