The corporate legal services industry is in need of massive change to address fundamental shortcomings, according to panelists at Wednesday’s “Magna Carta for the Corporate Legal Services Industry” session at the Corporate Legal Operations Consortium’s (CLOC) annual institute in Las Vegas.

But what exactly are the changes needed and who can really drive them?

To start, the idea of lawyers versus non-lawyers should be done away with, said Lucy Bassli, assistant general counsel of legal operations and contracts at Microsoft Corp.

“[Lawyers] need to embrace all of the other professionals that are in this ecosystem because without them, we will not be able to move forward,” she said. “There is a fundamental problem with the fact that we still think of our profession as attorneys and everybody else.”

At least one hurdle to this is the regulation of legal services, said Andrew Perlman, Suffolk University Law School’s dean and chair of the American Bar Association Center for Innovation’s governing council. “What you frequently find is that [the regulatory structure] is designed to ensure that lawyers largely practice on their own,” he explained, pointing to Rule 5.4 as of the Model Rules of Professional Conduct as an example, which prohibits lawyers and firms from partnering with non-lawyers.

“When you have these kinds of restrictions, it does necessarily inhibit the ability of lawyers to draw on the expertise of people outside of the legal profession,” Perlman noted. “That is one way in which the regulatory structure is prohibiting innovation.”

Most understand these shortcomings in the regulatory environment, so why aren’t changes being made? From the law firm’s perspective, there’s not necessarily an incentive to change, said Lisa Damon, partner at Seyfarth Shaw. “Speaking generally about law firms, it’s pretty good out there,” she said, adding that firms are paid by the hour, there are a lot of billable hours, rates are raised and those rates are paid.

“If you look out…you can see that it’s very scary, and we need to move to a different structure,” she said, but there is not widespread motivation to change the rules.

Billing is another area in legal that is often cited as in need of revision because while there’s been a push for alternative fee arrangements in recent years, it’s still often the case that top firms charge high hourly rates and legal departments pay them. So why aren’t in-house counsel pushing back?

“This is how things have always been done,” Bassli said. “We’ve[law departments generally] set the standard and the expectation with our CEOs, our CFOs, that this is the market for legal services.”

That’s not to say there’s not responsibility on the part of corporate legal departments to push for change here, Bassli acknowledged, but to impact the approach to billing, firms and other players in the field have to be part of the process. “Until those smaller little parts start shaking up the system and putting little tiny sticks in all those different spokes that are churning, you’re not going to have this uber change,” she said.

This is where law schools come in, according to Scott Westfahl, a professor at Harvard Law School and the director of its executive education program. “Legal education, the cost is incredibly high and the reason graduates are going into large law firms and need to be paid $180,000 is so that they can start paying that back,” he said. “Those economics start driving everything up the chain.”

Law schools are feeling pressure from a number of different angles to do things differently, Perlman said. Application numbers have dropped, he noted, and because the job market has shifted, many schools are evolving and coming up with new programs. “That’s how we try to meet the supply and demand, is go to where the market is headed rather than train students for a legal market that may have existed 50 or 100 years ago,” he explained.

There is no easy fix, but the key to addressing these problems is for all sides of this industry – from firms to in-house counsel to technology providers – to collaborate, said Seyfarth’s Damon. “We should be working together,” she said. “We can solve these problems together, but we’ve got to get to the table and talk about it.”