• Audit the books. CEOs have a financial incentive to make their books look as good as they can. So Merrill's next CEO will want to hire independent investigators to find all the skeletons and take a big bath write-down of all the businesses in the company. O'Neal has claimed that seven out of eight of Merrill's businesses are doing well. But an independent investigator might differ with that conclusion. And once the books are written down, Merrill's next CEO will find it easier to improve its performance -- starting from a lower base.
• Exit the losers. This audit should help Merrill's next CEO understand where the real problems reside. Using this more accurate analysis, the CEO will be able to decide whether the weakest businesses should be shut down or sold to another company that may be in a better position to boost their returns. This analysis should not be made solely on the basis of their recent troubles but also with an eye toward their prospects over the next few years. While O'Neal might view selling its 20% Bloomberg stake as a way to raise quick cash, for example, a new CEO might look at that stake as a key long-term investment.
• Shore up the winners. Of course cutting losers is a way to stop the bleeding but it's no way to spur growth. To that end, Merrill needs to assess which businesses will be its future growth engines. It seems clear that any businesses catering to asset-backed securities or private equity will be weak in the next several years. By contrast, a retiring wave of baby boomers might be willing to pay Merrill to secure their retirement.
• Replace the guilty. While O'Neal has certainly fired some lieutenants, the next CEO could be in a more objective position to assess whether the executives and managers of Merrill's businesses are likely to be part of the problem or part of the solution to face its challenges and capture its opportunities over the next several years. For the businesses Merrill closes, those managers will simply be laid off. For those it is cleaning up for sale, it will probably need new managers who can get rid of the deadwood. And for its growth engines, the next CEO will need to decide whether better managers might be available.
• Invest in future growth. Whatever judgment it reaches about growth engines, Merrill's next CEO must make sure that there is enough capital invested in them to secure their market leadership. This capital could be made available in part by stopping the bleeding in money-losing businesses and by selling those that don't fit. But ultimately this cleanup will be essential to restoring Merrill's credit worthiness so it can attract the capital it needs to invest in its future growth businesses.

There is no way that O'Neal can do these things because he is more part of the problem than the solution. It will be interesting to see how long it takes for a new CEO to step in and get to work.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup and has no financial interest in the other securities mentioned in this post.