Natfhe, the lecturers' union, has called for the law to be changed to provide for larger, more representative, and more accountable university governing bodies.
It has also proposed a higher education code of practice giving more detailed guidance for the conduct of governors and senior managers.
Natfhe says its own survey, which shows that women and ethnic minorities are under represented on governing bodies, backs its call for legislation to guarantee "representative balance".
Its suggestions come in the light of concern primarily about the governance of former polytechnics and follows government-backed proposals from the Committee of University Chairmen last month.
The CUC said governing machinery should be modelled on old universities with staff and student representation, but stopped short of calling for legislative changes.
Natfhe suggests the funding council should set up "external machinery" to handle unresolved complaints or those about the governing body itself.
This system should not replace a visitor where one exists but be available to all institutions.
Natfhe's proposals for new legislation on governing bodies also include: * Adequate representation of teaching and non-teaching staff and students.
* Criteria for independent members to include educational, local authority, trade union, professional, user-community groups, business and industry interests.
* All governors to be elected or appointed for a fixed term of office.
Its proposed code of practice would restrict confidential discussions on governing bodies and seek maximum openness in identifying potential governors with an open register for potential candidates.
Early returns to Natfhe's survey of new universities and HE colleges show only one in five governors are women and 70 per cent of the institutions have no ethnic minority governors.
A quarter of institutions have just one staff member on the board while 90 per cent have just one student.
A spokesman for the DfE said: "Procedures relating to the governance of higher education institutions are something ministers are considering and they will look at proposals from Natfhe and others."