John Lund, Parsons Behle partner and Ralph Baxter former Chairman and CEO of Orrick, Herrington & Sutcliffe (Photo: Courtesy Photo)

The coronavirus pandemic has laid bare the long-standing dysfunction of the way legal services work in America. The legal needs of ordinary citizens have been dramatically increased by the pandemic and the economic crisis it has caused.

We have long had a genuine crisis in access to justice; in 2019, 70% of Californians facing a legal problem received no legal assistance. Repeated, thoughtful proposals for reform have been quashed by those in the profession who believe they benefit from the status quo.

The pandemic makes the crisis worse. Americans need lawyers now more than ever. But they aren't using them because they can't afford them, can't find them, and, often, don't even know their personal issues have a legal solution.

We are both long-time lawyers and leaders. One of us was president of the bar in a mid-sized state. One of us was chair of a global law firm. The noble calling of the legal profession has guided us all our lives. We know our profession needs to change.

California has an opportunity to lead that change. On Thursday, the State Bar Board of Trustees votes on whether to move forward with reforms to the rules governing the practice of law in California. Their decision will then be reviewed by the California Supreme Court.

We urge the Bar and Court to embrace bold leadership, advancing these reforms that will benefit citizens and small businesses throughout California. The issues are complicated and numerous. There is no simple answer;  there rarely is. Here is a fundamental place to start:

Allow Nonlawyers To Participate in the Business Side of Law

California Rule of Professional Conduct 5.4 forbids lawyers from sharing income of a law practice with "nonlawyers," either as partners or investors. This ban has profoundly negative impacts on lawyers and the market for legal service, in several ways. Here are two:

One: It prevents law firms from raising equity capital critical to build and sustain their businesses, forcing them to rely on debt and after-tax income instead. This is not much of an issue for the largest firms. But it is completely debilitating for the firms that advise the majority of individuals and small businesses with their daily legal problems. Imagine how the technology sector would fare without access to private capital to fund research and growth.

Two: It impedes innovation. Law firms are years behind other professions and industry in modernizing how they do things. In addition to not having access to capital, Rule 5.4 prohibits lawyers from sharing income with anyone other than lawyers. New ideas and different perspectives are essential for innovation. Where would technology innovation be if companies could not offer equity to key employees as they grow?

The adverse impact of Rule 5.4 is starkly evident. Without it, lawyers could partner with hospitals and doctors, with accountants and social workers, and with technology companies and in other businesses. Lawyers could practice law with stable salaries and benefits as staff attorneys in consumer-focused law companies, serving more Californians through technology at scale.

Opponents of change argue that modifying Rule 5.4 would harm the public because the interest of nonlawyer owners or investors would cause a "race to the bottom," forcing lawyers to serve clients badly, even fraudulently, to make a profit. The preposterousness of the idea that lawyers are immune from profit motive or that lawyers alone are morally incorruptible should be obvious. Indeed, there is no evidence to support this argument. Jurisdictions that have allowed nonlawyer investment, such as England & Wales and Australia, have seen increased innovation and no decline in the quality of legal service or the amount of work for lawyers.  No jurisdiction has reinstated the ban on nonlawyer ownership after repealing it.

Lawyers should be leading the charge for this reform. A noble profession does not exalt its own interests over those of whom it is sworn to serve. Lawyers are leading in Utah and Arizona, where state supreme courts have proposed reforms to permit nonlawyer ownership and investment with careful oversight.

California should be in the vanguard of reform. Diversifying and innovating the profession will result in increased access to justice: More people will get better legal help for less money and more lawyers will practice law in new ways. The proposal before the Board, developed over almost two years of study and following the model already approved by Utah's Supreme Court, outlines a regulatory "sandbox" approach, allowing limited relaxation of Rule 5.4 to permit new business models and services under careful oversight. The Bar's leadership has been heavily pressured by special interest groups of lawyers trying to protect their own interests. The Bar must not allow lawyers' fear and self-interest to undermine the needs of all Californians.  Failure to advance regulatory reform would be a moral failure of the public's trust in a time of acute crisis.

The Bar should advance reform by approving the regulatory sandbox and allowing nonlawyer investment and ownership of legal services in California.

Ralph Baxter served as Chairman and CEO of Orrick, Herrington & Sutcliffe LLP from 1990 to 2013; he is now an advisor to legal technology companies and writes the blog Legal Services Today and co-hosts the podcast Law Technology Now. He has been a member of the California Bar for 45 years. John Lund is a past president of the Utah State Bar, co-chair of the Utah Implementation Task Force on Regulatory Reform, and a partner at the Salt Lake City firm of Parsons Behle.