Big Law is suddenly taking an unusual interest in how average Americans are served by the legal system.

It's not that lawyers at the apex of the profession have historically been indifferent to the plight of the marginalized—the flourishing of well-funded, prestige-generating pro bono programs at elite firms tells the opposite story. But the growing recognition of an access-to-justice crisis in American society—in which individuals and families struggle to find assistance for pressing legal needs—is ushering in a ­reform movement. Along the way, it could unintentionally—or perhaps intentionally—change the business model of Big Law.

A 2017 study by the Legal Services Commission found that 86% of the civil legal problems reported by low-income Americans received inadequate or no legal help, and 71% of low-income households needed help at least once in the previous year for issues such as health care, housing, disability access and domestic violence. In the quest to remedy this imbalance, activists and academics have focused on how the legal profession is regulated. And the proposed changes would reverberate far beyond landlord-tenant court.

Advocates for change have been most successful in the West, where regulators in California, Utah and Arizona are forging ahead on efforts to open up the legal industry to nonlawyer ownership. Technology is central to the push because of its capacity to drive down consumer costs and make basic legal work affordable. And advocates argue that allowing lawyers to share fees and enter partnerships with nonlawyers would spur innovation.

As Indiana University law professor William Henderson wrote in a 2018 report at the heart of the reform process in California: "The core market problem is one of lagging legal productivity that, over time, increases the price of traditional consultative legal services relative to other goods and services."

Modifying the rules would then offer a way to cut into those prices. But as Henderson acknowledges, the effects of any change would extend well beyond those harmed by the gap: "Right now, ethics rules don't make a distinction between 'people clients' and 'organizational clients,'" he says.

And that's why Big Law—along with the Big Four and the growing number of alternative legal service providers and litigation funders—are paying close attention. Regulatory change is bound to alter the landscape in which they all do business—and create winners and losers in the process.

The United States presents a challenge for regulatory reform. The United Kingdom, which liberalized its legal marketplace in 2007, did so with one nationwide piece of legislation, but our federal system is a patchwork—even though most states heed the American Bar Association's model rules, which bar fee-sharing and nonlawyer ownership.

Of the three states advancing the conversation, California stands out. It isn't moving the fastest—the Utah ­Supreme Court has already signed off on a pilot project allowing innovation-focused legal entities to push new products in a "regulatory sandbox," and is poised to amend its rules of professional conduct to loosen the ethical restrictions on lawyers with regard to advertising and fee-sharing. Meanwhile, in the Golden State, a final report from the task force charged with outlining parameters for reform is due in March, and the group was set to gather Monday for its final meeting. Observers have sounded alarms about whether the California Supreme Court will enact any proposed changes, but even the possibility of change in the world's sixth-largest economy has sparked conversations elsewhere in the country.

"California is an enormously important jurisdiction. When it takes the lead on something, it obviously gets attention," James Jones, a senior fellow at the Center for the Study of the Legal Profession at Georgetown University Law Center, says.

Even if California's justices throw up a roadblock, high courts elsewhere in the country, which have the ultimate authority on regulating legal practice in each state, are attuned to the issue. Laurel Terry, a professor at the Penn State University Dickinson Law School, says conversations have been going on for several years at the National Center for State Courts and the Conference of Chief Justices.

"Judges are on the front lines," she says. "They see what's going on and communicate with each other."

Their continued attention to the issue could overpower opposition from state bar associations, which often operate like medieval guilds protecting their turf. These groups tend to be dominated by solo practitioners and small firms that are terrified of increased competition. In public comments in California, they have been resoundingly against reform.

"We'll see justices say, 'We don't need to ask the bar's permission to do this," Henderson speculates, particularly with two other national organizations—the Institute for the Advancement of the American Legal System and the ABA—either advocating for change or open to it.

As a sign that momentum is growing, the Chicago Bar Association launched a task force last fall to explore the prospect of reform. And pressure from businesses that stand to benefit is likely to increase once two or three states take action. For example, the burgeoning litigation finance industry, eager to invest directly in law firms, has already begun to flex its muscles through lobbying and advocacy on other subjects that affect its bottom line. Expect leaders there to raise their voices.

"Once that dam is breached and there's a disequilibrium in terms of access to capital, that's going to annoy a lot of people in the states that don't have this, and they're going to push for it," consultant Janet Stanton, a partner at Adam Smith Esq., says.

Solo practitioners and billion-dollar law firms aren't often allied, but there is a broad coalition opposed to the proposed changes. While most opponents recognize the access-to-justice issue, many are nonetheless concerned that allowing nonlawyers to own equity and inviting outside investment in firms would threaten attorneys' independence.

In February, former New York State Bar Association president Stephen Younger sent a letter to the ABA House of Delegates admonishing the report on lawyer ownership, saying  it "fails to grapple with this risk of eroding our profession's critical values." At least a dozen state bar delegates have rallied in opposition of the proposed changes, according to David Miranda, a past president of the New York Bar.

In an opposition statement attached to the Arizona task force's report, Judge Peter Swann, the chief jurist on one of the state's intermediate appellate courts, put forth the common ethical argument against changing the ABA's Model Rule 5.4, which governs the issue of ownership. He argued the outcome would be a bifurcated—and, at times, antithetical—relationship between clients and investors, and that the latter may take priority over the former.

"Investors owe no duty of loyalty to the clients of the lawyers in whom they invest," Swann wrote. "The lawyers in such relationships would retain the full duty of undivided loyalty to the client, yet assume fiduciary duties to conduct the representations to maximize profit for the nonlawyer partner. It does not take great imagination to understand that undivided loyalty would be a practical impossibility in such a relationship."

Arizona's proposal would make it unique in the nation, he said, "and a leader in the race to the bottom of legal ethics."

Swann's concerns have deep roots in the history of the U.S. debate on nonlawyer ownership. Similar fears helped sink several previous proposals stretching back to the 1990s.

In 1998, then-ABA President Philip Anderson created the Commission on Multidisciplinary Practice, or MDP Commission, one of the first formal explorations of the issue. When the commission presented its report a year later, it recommended the ABA amend its rules to allow for nonlawyer ownership and outside investment. The ABA House of Delegates rejected the recommendations and echoed the arguments Swann would make two decades later, suggesting no changes should be made "unless and until additional study demonstrates that such changes will further the public interest without sacrificing or compromising lawyer independence and the legal profession's tradition of loyalty to clients."

But in the years since the failure of the MDP Commission, several countries have gone forward with their own reforms, including Australia, Canada and the U.K. So far, the prophecies of ethical disintegration have not come to fore.

England and Wales have permitted nonlawyer ownership and outside investment, even allowing firms to go public, since the Legal Services Act of 2007. At the time, many U.K. attorneys had the same ethical fears found in the United States, dubbing the new regulations "Tesco Law," a pejorative term named after the country's equivalent to Walmart.

A 2014 report by the U.K.'s Legal Services Consumer Panel found that "dire predictions about a collapse in ethics and reduction in access to justice as a result of [alternative business structure] have not materialized. There have been no major disciplinary failings by ABS firms or unusual levels of complaints."

Zulon Begum, a partner at U.K. employment and partnership firm CM Murray, says the strict ethical regulations put in place by the Legal Services Act preclude bad actors from investing in or owning firms. The vetting process for a private equity firm to invest can be "lengthy and intrusive," a thorough examination of the firm's ownership structure that would rule out anyone with criminal convictions or other concerns.

Delaware School of Law ethics professor emeritus Louise Lark Hill sees little evidence that ownership and investment slackening in Australia have deteriorated ethics there. In fact, her research found that ethical complaints actually decreased.

"Evils that people have been concerned about haven't really been evident," Hill says.

Levenfeld Pearlstein CEO Angela Sebastian-Hickey sympathizes with critics who raise questions about attorney-client privilege or client conflicts. But she sees those as challenges to be addressed, not a nonstarter, and she disagrees with the argument that ownership by nonattorneys would inherently present ethical issues. As the leader of her law firm, Sebastian-Hickey sees herself as living proof that leaders without a law degree can ethically run a firm. Lawyers aren't inherently more ethical than anyone else, she says.

"I'm a CPA," she says. "I still have ethical standards."

Law firms' most compelling fear may not be about ethics, in the end, but the economic implications of the proposed changes, particularly what they could mean for the Big Four accounting firms, which have for years viewed the world's largest legal market as the coveted final frontier of expansion.

The Big Four's shadow loomed over an open letter that was signed by 10 of California's largest law firms and submitted to the California task force in September 2019.

"Lawyers also argue that the global dominance of the accounting profession by a very small number of accounting firms is an anticompetitive model that should not be replicated in the legal profession," the firms, including Morrison & Foerster, Pillsbury Winthrop Shaw Pittman and Baker McKenzie, wrote. Each of the 10 firms declined to further discuss with The American Lawyer their opinions on the proposals.

Former Orrick, Herrington & Sutcliffe chairman Ralph Baxter, who sits on the board of legal technology startup Intapp, holds views that have long put him in the minority among Big Law leaders. He's now joined in his openness to reform by at least one current Big Law leader. Gordon Rees Scully Mansukhani managing partner Dion Cominos acknowledges his peers are largely conservative with regard to how the profession is structured.

"Lawyers have been very self-protective. Bar associations have been run by lawyers and they look out for their own," he says. "In law school, we're rewarded, in fact, for memorizing precedent and then reciting it. Doing something new is somewhat challenging for lawyers to embrace, and it represents competition from outsiders to the profession."

Law firms are outliers. Other businesses in the service sector are owned by individuals or organizations that don't provide the service themselves—corporate or nonprofit-owned hospitals, say, or accounting firms owned, in part, by non-CPAs. As the legal industry transforms, more questions arise about the necessity of this outlier status.

"Law is not a capital-intensive occupation unless you're in growth mode," Cominos says. "As a result, there has not been a great need for law firms to tap into outside investors. Now, with law becoming more like big business, with firms with revenues in the billions of dollars, it's more of a forefront issue."

Cominos, who is based in San Francisco, says Gordon Rees' leadership has begun internal discussions about how to transform the firm, and not just as a reaction to the potential for new rules in California.

"It's not so much out of fear," Cominos says, "but rather the opportunity to evolve into a more sophisticated organization."

In practice, that could entail investments in technology that underpins ancillary legal services, allowing firms to serve clients on volume work while still turning to lawyers to offer sophisticated legal advice.

Reed Smith has also demonstrated an openness to regulatory change. In November, it became the first international law firm to gain an alternative business structure license in the U.K., allowing it to offer services beyond traditional legal advice, add nonlawyer partners and even take on outside investors. But it appears the firm is still biding its time on how it intends to put the license to use. Global managing partner Sandy Thomas says simply that the firm is poised to take advantage of new opportunities "as they arise."

Similar moves by the Big Four have lent credence to attorneys in the United States who fear what would happen if the accounting giants were allowed to practice law. PwC, EY and KPMG all acquired their U.K. ABS licenses in 2014, and Deloitte followed suit in 2018. In the years since, the Big Four have developed into legal powerhouses within the country. PwC's legal operations reportedly brought in about £70 million ($91 million) in 2018, putting it just outside of the top 50 U.K. firms in terms of revenue.

The Big Four have competed most directly with midsize firms. Their relatively recent entrance into the market means they don't yet have the prestige that attracts top talent to Magic Circle firms, CM Murray's Begum says. But the Big Four can invest in the structure and technology needed to compete, and law firms are taking notice.

"All the midmarket and some Big Law firms see the Big Four as a competitive threat," she says, "and it has just started."

Despite the threat, many midsize firms in the U.S. either welcome the change or greet it with indifference. In addition to the Big Law firms' California open letter, several attorneys from personal injury firms weighed in with strident opposition. But midsize firms were conspicuously absent from the hundreds of public comments.

Joel Carpenter, managing partner of midsize Boston firm Sullivan & Worcester, says his firm's tax lawyers already compete with the Big Four every day. He believes they often can't bring the requisite expertise at the lower price point his firm offers.

"I wouldn't be blasé about competing with them, because they're formidable competitors. Like any business, I would want less competition. But I don't know if you know the rates those people charge," Carpenter says. "They aren't cheap. They compete with us by pushing the work down to people who aren't as capable."

Regarding the proposed changes, Carpenter says he doesn't know what he'd do with an investment offer. Sure, he could boost his staff and technology capabilities, but how would he get the return many investors seek?

"If somebody came along and said, 'We want to invest $50 million into your law firm,' I wouldn't know what to do with it or [how to] generate returns," he says.

Observers outside of law firms also question whether partners are willing to sacrifice their existing share of firm profits.

"You don't want the investor's return to be in competition with profits per partner," Henderson says.

From Sebastian-Hickey's point of view, investments aren't just about the money, but also the ideas that an outside partner would bring to the table. She looks at the rapid proliferation of the alternative legal service provider industry as evidence that some good ideas haven't been able to flourish in law firms because of their culture and ownership restrictions.

"ALSPs grew frustrated with the system and now they're competitors," she says. "The ideas are there, but they aren't in the executive committees."

James Goodnow, managing partner of midsize Arizona-based Fennemore Craig, welcomes the changes being considered in his home state. He believes in the access-to-justice message and says law firms' monopoly on the legal services industry has stunted innovation. The changes would open the door to competition that would sink many firms, but he says the positives outweigh the negatives.

"We need to be moving faster, and this forces law firms to innovate and accelerate the rate of change," Goodnow says. "The big winners in this might be the clients. It could be that firms who aren't willing to do this will take a hit, but that's the marketplace. It's survival of the fittest."

As for his own firm and others like it, Goodnow ­understands that the entrance of the Big Four would pile on pressure. Those with a national footprint, such as the Magic Circle in the U.K., would have a grace period that wouldn't be afforded to regional firms that lack scale.

"There's no doubt that there has been heightened competition from ALSPs, and midmarket firms have been struggling in how to adapt. Do you try to beat them or join them?" Goodnow asks. "The answer is probably both."

In recent years, several U.S. firms have cemented alliances with the Big Four. Regulatory changes could open the door to even tighter relationships. For certain firms, Goodnow's rhetorical question would then become a practical one.

Bruce MacEwan, president of Adam Smith Esq., is willing to speculate on what he would do if he were the managing partner of a 500-lawyer firm "of no particular distinction."

"If the Big Four came in," he says, "I would ask one of them, 'Can we combine?'"

The law firms at the heart of this discussion are big, and the Big Four are even bigger. There's also a number of smaller upstarts that will be affected.

In fact, many of these independent alternative providers and law firm subsidiaries have been charging forward without any regulatory oversight. While businesses providing ancillary services are now under the umbrella of regulators in the U.K., that's not the case here.

"An increasing amount of services once exclusively provided by law firms are now provided by legal service providers that are not law firms," says Anthony Davis, whose practice at Clyde & Co focuses on professional responsibility. "It's great for the public that the ways in which they can obtain legal services are expanding. It's not great that those provided outside of law firms are not regulated."

Utah, again at the vanguard, is poised to start regulating services through its sandbox approach, in which innovators will apply to begin experimenting with new services and the task force will agree to relax certain existing regulations while monitoring the progress and outcomes of the experiments.

In public comments in California, Catherine Kemnitz, senior vice president at on-demand legal staffing provider Axiom, welcomed the potential for changes to lead to the implementation of new technology, arguing that outside investment should be allowed on a pilot-project basis.

"Axiom is not an ABS, and in markets where we face more competitors, we do not always win. But competition drives us to innovate and improve for the benefit of clients and lawyers," Kemnitz wrote. "We believe that introducing the creativity and the talent of many who are today considered ­outside the legal profession would benefit not only the delivery of legal services, but also the satisfaction of legal practice."

A number of law firms have introduced subsidiaries that handle ancillary legal services, some of which are wholly owned by their parent, such as Bryan Cave Leighton Paisner's BCLP Cubed or Reed Smith's Gravity Stack, while others accept outside investment, such as Greenberg Traurig's Recurve. But by unbundling e-discovery or technology services from firms' core work, they're also skirting oversight. That's likely not the primary reason they do it, though.

"Many law firms like the idea of keeping the law firm separate for revenue and compensation purposes from other kinds of services. I'm not sure you would see enormous changes if states change these regulations," Georgetown's Jones says. "On the flip side, there's no reason not to change these regulations. The states are kidding themselves if they think that firms are not going after outside investment. We may as well call a spade a spade."

Also arriving on the landscape in the last decade are the growing number of litigation finance operations that have been investing first in single cases, then in portfolios. Alongside more established investing outfits, they're eyeing the prospect of regulatory change closely.

"Hedge funds and legal finance are chomping at the bit to invest in law firms," says Scott Mozarsky, who led Vannin Capital's litigation finance business in North America before becoming a managing director at media and tech-focused investment bank JEGI.

Funders believe the opportunity to invest directly in firms would eliminate the risk of "adverse selection," in which asymmetrical information sometimes saddles them with duds.

"Litigation funders would get greater security across all a law firm's cases," Dai Wai Chin Feman, director of commercial litigation strategies and corporate counsel at Parabellum Capital, says. "It would reduce the risks inherent in the model."

With personnel who have both litigation experience and savvy from the finance world, they also believe they're in the ideal position to make sense of the value in these opaque businesses.

"Litigation funders are a natural fit to underwrite and properly assess and invest in law firm equity," Feman says.

As for concerns that partners won't consider sharing their earnings with outside investors, funders say those who recognize the potential benefits of outside capital—moving into a new geographic region, say, or launching a new practice—would ultimately reap substantial rewards.

Eric Blinderman, the CEO of Therium Capital Management, compares it to the decision partners at Goldman Sachs made to go public.

"That worked very well for Goldman," he says.

The fervor over how rule changes might affect Big Law and the Big Four can obscure the stakes for clients and consumers—the purported reason for deregulation.

Jonathan Molot, co-founder of litigation funding firm Burford Capital, argues that sanctioning nonlawyer ownership would create a market for law firm equity that would benefit clients by marrying the incentives of rainmaking partners and corporate clients. No longer would law firms be a cash-in, cash-out enterprise where older partners, who disproportionately control the lion's share of business, feel the need to save for retirement through furious billing—even when it hurts clients and junior partners. Creating an equity market would allow partners to have a nest egg and clear the way for long-term strategizing, he says.

"You have differing incentives among lawyers depending on their age," Molot says. "Those closest to retirement can't forgo money that year. Would you take a contingency fee for litigation that takes five years when you retire in two years? If we changed the rules such that law firms could have permanent equity, it would enable retiring partners to retain some equity as well, and have an incentive to invest in the firm, to offer long-term alternative billing that clients want, to promote junior partners."

Corporate clients, though, have initially reacted with thoughtful trepidation. In commenting on the proposed California rule changes, the Association of Corporate Counsel, which comprises 2,000 in-house counsel, offered up a careful and lukewarm response. Regarding repealing the fee-sharing ban, the ACC "takes no position currently as to whether or not this would be a good development for the U.S. legal profession," it said. It also cast doubt on the efficacy of the changes by drawing parallels to Washington, D.C., which has allowed for fee-sharing since the 1990s: "We do not think the first proposal, which is similar to D.C.'s version of Rule 5.4, would have a substantial effect on in-house counsel, as the D.C. rule has been in place a number of years and has not substantially affected the legal market," the ACC wrote.

As for the individual consumers that these changes are supposed to help, the cost savings and access have not yet come to fruition. A 2017 report published by the U.K.'s Legal Services Board found that prices fell in some legal areas and rose in others, with no discernible difference in price between varying law firm structures. "Differences in methods of service delivery do not appear to be key factors in explaining price differences," the report said.

Lark Hill, the Delaware Law School researcher, says there may be a cost advantage in allowing for nonlawyer ownership, but her studies have found no similar correlation in outside investment.

Advocates argue the scores of individuals and families without legal access are reason enough to take a risk on deregulation. Critics paint the changes as reckless and ineffective. Ultimately, a definitive answer on whether deregulation can bridge the access-to-justice gap won't be available until years, if not decades, after the changes go into effect.

Even if there's a setback in one of the early-moving states, these walls are unlikely to stay up forever. The push over two decades ago for multidisciplinary practice might have come before its time, but what's different now is the groundswell of conversation about the moral implications of retaining the status quo. That's reason enough for everyone in the market to think seriously not just about what they may have to lose, but also the opportunities that might accompany change.