They need to just remove penetration in its entirety and then rebalance defense from there.
Jinx: "But then I can't mow down entire teams of Thornmail with my Last Whisper!"
Well maybe you should have let Brand and Vladimir have some of that CS!
Not really, penetration as a stat is perfectly fine, it definitely needs to be properly tuned and balanced and right now league is leaps and bounds away from accomplishing that, but on it's own vs armor/magic resist is fine. Many games already use similar systems in a healthy way, but the issue right now is there is no real decision making in buying armor and magic penetration. It's just a stat you get as much of as you can because enough flat pen gives you true damage to squishies and with how it combos with % pen you shred tanks as well.
If penetration was changed so you had to focus your builds, IE flat pen is what you picked up if you wanted to rip through a target with 50-100 armor, and % pen is what you used if you needed to cut through people stacking it, then it would be perfect. Assassins would favor the flat pen because of how they tend to target squishy champs while ADCs who would do the majority of the constant damage and would need to cut through the front line would favor % based pen.
The issue was back during S2 there was really no effect flat/% pen items. For armor you had Yomuus which was the time was worthless and Last Whisper as the only two real armor pen items. Black Cleaver could shed up to 45 armor but it was a very odd ball set of stats that no assassin at the time would of really wanted. For Magic pen wasn't as bad as you have Haunting Guise(but at the time it built into nothing), Abyssal Scepter, Sorc Shoes, and Void Staff. If they just let Haunting Guise build into Liandries, perhaps added 1 or 2 more flat pen magic items, and then actually added some flat armor pen items without changing the way stacking penetration worked the game would be infinitely better off that it is now.