U.S. Secretary of Commerce Penny Pritzker in her office at the Department of Commerce in May 2014.
Gillian Laub--Fortune
By Nina Easton
June 2, 2014

As she makes the rounds on her first official visit to Silicon Valley earlier this year, Commerce Secretary Penny Pritzker takes special note of the airy, open-plan offices at Facebook’s Menlo Park, Calif., campus, including the glass-enclosed conference room where CEO Mark Zuckerberg regularly camps out. By contrast, her own headquarters, the Herbert C. Hoover Building, built in 1932, “is like a rabbit warren,” she complains to me. The Commerce Department’s offices are “very closed,” she says. “If information is the coin of the realm, I don’t want to have to go seeking it.”

Pritzker’s longing for a more free-flowing workplace vibe is a reminder that the 55-year-old Chicagoan probably has more in common with Zuckerberg than she does with the other members of President Obama’s cabinet. Like many of Silicon Valley’s elites, she is stratospherically wealthy (estimated net worth: $2.4 billion), an extreme-sports enthusiast, and a serial entrepreneur with a dozen startups to her name. “I love building businesses,” she later exclaims. “It’s so cool!”

Her background sets her apart from her predecessors at Commerce, a long list of lawyer-lobbyists and political appointees, though to be sure, Pritzker’s appointment last year was an acknowledgment of a job well done. A philanthropist, civic leader, and member of one of America’s most prominent families, Pritzker channeled her sophistication and power of persuasion to help a then-little-known senator raise hundreds of millions of dollars to take on the Clinton machine in the 2008 presidential primaries. In 2012 she served as national co-chair of Obama for America.

But this official account of her ascent to the top echelons of American power tells only part of the Penny Pritzker story, the part that the Commerce Secretary is most comfortable sharing. A series of conversations with Pritzker — and crucially, exclusive interviews with cousins Thomas and Nicholas Pritzker, who broke a family code of silence to offer their own intimate insights — reveal a personal story of remarkable resilience. Despite her pedigree, Pritzker had to overcome a tragedy-filled childhood (which unfolded just 10 minutes from the Facebook campus in the tony suburb of Atherton) and later prove herself inside a male-only hierarchy, ultimately earning her uncle Jay’s trust and becoming one of his handpicked successors. In her early forties, after helping expand the Hyatt (H) empire, she faced agonizing setbacks: Members of her vast family accused her, Thomas, and Nicholas (by then the troika running multibillion-dollar Pritzker-related companies, including Hyatt Hotels and industrial conglomerate Marmon Group) of enriching themselves at the expense of the other heirs’ fortunes. Many cousins wanted to cash out. To settle the feud, the family unraveled its business empire, selling off $5 billion worth of companies that Penny had personally built. In the process she became estranged from the two brothers she helped raise.

So perhaps it is no surprise that she is energized on her trip to Silicon Valley, where she meets executives and entrepreneurs who are starting businesses rather than dismantling them. But even here, where leaders such as Sheryl Sandberg (whom she meets at Facebook) are philosophically aligned with the President, Pritzker gets an earful. In meeting after meeting she’s confronted with frustration over patent and immigration reform and (most nettlesome) the hit to tech companies’ overseas business caused by revelations about NSA spying. Outside Silicon Valley, where regulation, taxes, and Obamacare top the list of business complaints, it will take more than listening tours to convince skeptical executives that her boss isn’t their enemy.

Pritzker at Obama Campaign headquarters in 2007 -- Jose M. Osorio -- MCT/ZUMAPRESS.com

Pritzker greets business leaders as a kindred spirit. She is adept at managing conflict and has shown in a very public way that she’s willing to make painful choices for the greater good — and then move on to the next challenge. All that makes her an unusual creature in Washington these days, but potentially a very effective one. Says first cousin Gigi Pritzker, an acclaimed film producer: “When you face the fires early on, you either crumble or pull up your ‘knickies,’ as my mom [Cindy Pritzker, Jay’s wife] would say. Penny’s gone through exceedingly tough things, but she’s not angry or bitter, just laser-focused.”

The Pritzkers are an extremely accomplished lot, even by the high standards set by storied American families such as the Rockefellers and the Lauders. Nicholas J. Pritzker fled Kiev in the 1880s after his family was warned by Cossacks that being both Jewish and politically active was not a recipe for a long life; he taught himself English by reading the newspapers he sold on Chicago streets and went on to found his own law firm. More than a century later, his great-grandchildren are still ingrained with immigrant values: work hard, get a good education, give back. Chicago is dotted with evidence of the family’s civic works, from the Art Institute’s Pritzker Wing to the Pritzker Children’s Zoo. Penny herself has been a central figure in city school reforms, says Mayor (and friend) Rahm Emanuel.

Click graphic to enlarge.

A fiercely competitive spirit also fuels Nicholas’s heirs and may have contributed to the contentious legal battles over the family fortune. Tom is not only a corporate chieftain but a Tibetan scholar; Nick is an accomplished cosmologist. Penny Pritzker boasts a law degree and an MBA from Stanford. “There is this voice and internal need to live up to the [family] expectations,” she says. “And there are very big shoes involved.” Adds Nick Pritzker: “You’ll be a failure unless you’ve found the next thing to conquer. We call it shpilkes in Yiddish.” Nicholas’s son, Abram Nicholas (known as A.N.), used his Harvard law degree to build a real estate fortune. His eldest son, Jay, emerged as the patriarch of the modern-day Pritzker family: A gregarious man and a legendary dealmaker, he is credited with building Hyatt into a global operation; with brother Robert, an engineer, he also built the family’s Marmon Group conglomerate of 60 industrial firms.

Lost in this family narrative is Penny’s father, Don, whose short life meant short shrift in the Hyatt story. But Don was key. “It was Don’s personality that created the Hyatt culture,” says Tom Pritzker. Don’s was a booming, ebullient presence. He was a sports fanatic and pushed himself on the tennis court. He had an equally prodigious appetite for food, which showed in his beefy physique. Says Tom: “When he would walk in the house, you’d better be prepared to have fun and laugh.”

As the youngest brother in the clan, 10 years Jay’s junior, Don was looking for his place in a family of outsize personalities. So when Jay dropped $2 million on his first inn — a nondescript motel on Century Boulevard next to the Los Angeles airport that was purchased from a man named Hyatt Von Dehn — Don jumped at the opportunity. At his side was bride Sue Sandel, a fashionable, Radcliffe-educated daughter of a lamp manufacturer. It was 1959, the year Penny was born, and the Boeing 707 had just been introduced, ushering in the 1960s Jet Age of businessmen traveling between cities and needing a comfortable place to stay.

COLOW PICK UP
Pritzker's senior class page in the Castilleja 1977 yearbook -- Courtesy Castilleja School

At first the business was anything but glamorous. Don bought a second hotel property, adjacent to the San Francisco airport, and moved the family to Palo Alto, a sleepy town of orchards and Stanford professors. Both Hyatt “hotels” were actually low-slung California-style motels: two stories with doors opening up to parking lots and runway fumes. On Saturdays, when Don went to work in his cramped Burlingame office, Penny would accompany her dad to work to make sure the ladies’ room was clean. (He checked on the men’s himself.) Her mother, Sue, picked out the staff uniforms and made sure secretaries’ birthdays were celebrated. “They were building a business together,” Penny Pritzker recalls.

Sue Sandel Pritzker was a glamorous presence, “always wearing a stylish suit,” as childhood friend Beth Harris recalls. “My mother had these beautifully long, sinuous legs,” Penny remembers. “She’d say to me, ‘You got your father’s ham hocks!’ ” She was also as driven and ambitious as her husband. “She wanted them to hold a place” in the Pritzker family, says Nick. Penny’s parents would entertain potential investors like Henry Ford II alongside celebrities and politicians at their home. Sue got involved in Democratic politics, licking envelopes with another local mom named Nancy Pelosi.

By the early ’70s life was charmed. Don was credited with building the nation’s fifth-largest and fastest-growing hotel chain. Don and Sue had just built their dream home — a modern structure suited to their elaborate entertaining. Penny and her two younger brothers — Tony, born in 1961, and J.B., who came along in 1965 — were thriving in the land of eucalyptus trees. Penny persuaded her parents to send her to the region’s only all-girls college-prep school, Castilleja, next to Stanford — overcoming her dad’s concern that she might turn out socially awkward if she didn’t learn alongside boys.

Then, in the space of a dizzy spell, their charmed California life came crashing down. Don, in Hawaii on business, left a tennis game feeling woozy before collapsing from a heart attack. He died at age 39. Penny, just 13, was devastated. “What do you say?” she says when I ask her about her father’s death. Pritzker looks out at her office’s sweeping views of Washington’s mall before finding the right words. “There’s a hole left in your heart the rest of your life.”

Then came a dark period in Pritzker’s life that, even now, she hates talking about. “It was messy,” she says uncomfortably. Sue — suddenly deprived of not only a husband but of the thrilling life they shared — fell into a dark depression. Pritzker is steadfastly vague about her mother’s condition: “She wasn’t well … She was in and out of places.” She will say only that she believes her mother would have thrived in a different era, when being a widowed mother of three didn’t mean social isolation. “She never really found her place again,” Pritzker says. A brief remarriage ended in divorce.

Earlier this year her youngest brother, J.B., told Chicago magazine of his mother’s battles with alcohol and how the children were often left to fend for themselves. As the oldest, Penny says, she stepped in to take care of her brothers, especially J.B., who was only 7 when their dad died. “I tried to be positive and hold us together as a family,” she says. But she remains protective of her mother’s legacy. For all her troubles, Sue was a mother who instilled in her daughter the confidence to take risks. “She believed I could do everything,” Penny says.

Her father’s death and her mother’s decline accelerated Penny’s maturity as a teen. “Her mother was depressed, and Penny was left alone and felt responsible for her brothers,” recalls her biology teacher Ethel Meece, who was also a friend of Penny’s mother, a fellow Radcliffe graduate. “It pushed her into being an adult in attitude. She was not a teenager anymore.”

Penny excelled academically at Castilleja, as well as in a world she mostly kept to herself: She traveled throughout the West as a competitive horsewoman, winning the state championship six times. She gained admission to Harvard, where she continued to play surrogate parent to J.B., who left California to attend nearby Milton Academy. When other undergrads were hitting the parties and football games, Penny attended parents’ weekends and cheered her little brother’s stage performances. “She was so proud of J.B.,” says childhood friend Harris. She also shuttled back and forth between Cambridge and California to care for her troubled mother.

Nearly 10 years to the day that Don Pritzker died, Sue called a tow truck after her Cadillac broke down while she was on a San Francisco shopping excursion. The driver later told a UPI reporter that Sue “seemed intoxicated” when he picked her up and that when he told her they were nearing the garage, “she looked at me as if she was spooked” before opening the passenger door and jumping out. Sue’s head hit the pavement, and the truck’s wheels hit her. She was pronounced dead at the scene. “Did she jump? I don’t know,” Penny says, shaking her head. “I just don’t know.”

Sue Sandel Pritzker, identified in news accounts as a “socialite,” was 49 years old. Penny was 23.

After her mother’s death and her graduation from Harvard, Pritzker snapped up a joint business and law degree from Stanford in June 1985. “She wanted to prove herself and earn her place in this all-male clan,” recalls her best friend from Harvard, Liz Sherwood-Randall, now a top national security official at the White House. “She wanted to carry on her father’s legacy.”

But first she wanted to prove something to herself: She hired a trainer and signed up for the Ironman Triathlon in Hawaii, considered one of the sport’s most grueling. For six months straight, three to eight hours a day, she trained for the event, a 2.4-mile rough-water swim followed by a 112-mile bike ride and a full 26.2-mile marathon. On the Kona course that day, she injured her foot on a lava shard. She finished in 12 hours.

When Nick Pritzker, 14 years her senior, called to encourage her to join him in the family business, she was ready. But not everyone else was. Pritzker’s grandfather A.N. liked to remind everyone that he was born in 1896 and couldn’t understand why a woman would want to go into business. His son was a bit more open to the ambitions of his young niece. “Jay embraced me as much as he was capable of doing,” she says. Along with his wife, Cindy, Jay Pritzker had acted as a surrogate parent during Penny’s difficult adolescent years. (The couple were no strangers to tragedy: Their 24-year-old daughter had committed suicide the same year Don died.) Penny called Jay “Uncle Dad” and made a point to schedule meetings with him in his office whenever she was in Chicago. A deceptively quiet-voiced prodigy who was admitted to the University of Chicago at age 14, Jay went from amused to impressed by his niece’s ambitions. By the late ’80s she was a key member on Hyatt’s development team.

Penny inherited her uncle’s head for numbers. “She could do amortizations and things like that very quickly,” says longtime business partner Kevin Poorman. “I think Jay saw a lot of himself in her.” Inside Hyatt she established a reputation for getting complicated tasks done. “Mission accomplished,” Nick and Tom would say to each other as they added to her to-do list.

Penny, like her father before her, was determined to carve her own path through the Pritzker fiefdom. So she became the ruler of “other” — the non-hotel real estate portfolio. “Penny was always looking for something she could put her stamp on, and she felt there were plenty of Pritzkers involved in hotels,” says Poorman. Her first project was Classic Residence by Hyatt (since renamed Vi), upscale residences for seniors in an era when eldercare mostly meant nursing homes. At age 27, Penny was especially conscious of that void because she was caring for her wheelchair-bound maternal grandmother. “I was living the problem,” she says.

The idea was a good one; the execution less so. After 18 months, a half-dozen projects, and some $40 million in family money invested, Penny Pritzker walked into her uncle’s office, declared the project a failure, and offered to let him fire her. Units sat empty as Pritzker and Poorman learned hard lessons about this new hybrid model of housing.

Jay counseled patience. Penny and Poorman changed management teams and improved marketing. Today the company houses some 4,000 residents.

Pritzker was hooked. She went on to turn around TransUnion, a credit business housed inside Marmon Group, tripling its value in seven years. She founded the Parking Spot chain of airport lots with Obama intimate Martin Nesbitt, and she developed the I.M. Pei-designed Hyatt Center. She gained a reputation as a fierce negotiator; she wrangled a sweet price for a former naval training center in Orlando that one of the family’s real estate arms would turn into a community development. Local critics condemned the deal as a giveaway by city officials.

She became a trusted member of Jay Pritzker’s inner circle, and in 1995, when he named his successors, he turned to his eldest son, Tom, his cousin Nick — and Penny, then 36 years old. Neither man questioned the choice. “She had all the things you want in someone who is going to be a leader,” says Tom. Jay Pritzker’s goal: to make sure the Pritzker collection of assets would thrive and grow.

Jay died in 1999. One year later a group of cousins challenged the threesome’s control, with accusations of “self-dealing” later emerging in court papers. The group included Penny’s two brothers. A lawsuit by two younger cousins — children of Robert’s second marriage — followed in 2002.

By 2001, with no easy solution in sight, Tom, Nick, and Penny made the difficult decision to dismantle the family’s business interests and sell off pieces so that each of the 11 cousins could go separate ways. (Robert’s younger children settled for $450 million.) Unwinding the complicated spaghetti bowl of 150 companies they had assiduously built — and that Jay so desperately wanted to keep together — “was our primary job for 11 years,” says Nick.

Tom Pritzker recalls the difficulty of trying to balance the interest of the companies with the needs of family members. “Do I take the hill and execute on the business plan — or worry about the relative who will be really hurt, knowing their emotional needs are legitimate?” Tom recalls. Says Penny: “What about the management teams and all the people who built these businesses — what was going to happen to them? Were they going to be treated fairly?”

But she, too, had personal feelings tied up in the unwinding. “It was hard,” she says. “Most of what I did for the family I built from scratch.” Intellectually she came to accept that restructuring the businesses ultimately was best for a family operation that had no clear line of succession. The next generation of Pritzkers is even more diffuse, consisting of dozens of cousins, including her children, Donald and Rose. (Husband Bryan Traubert is an ophthalmologist.) The restructuring was also what her brothers, Tony and J.B., both successful venture capitalists, wanted. Still, the process “basically cost me my relationship with my brothers,” says Penny.

The decade-long unwinding was finally completed last year. A multiyear public offering of Hyatt shares began in 2009; Warren Buffett bought the Marmon Group; the family sold a majority stake in TransUnion in 2010. Vi, the senior-living chain, was spun off. With this chapter in the family history over, can the Pritzkers find a way to reconcile? Penny won’t offer details, and her brothers declined multiple requests for comment.

A black, government-issued SUV pulls up to Georgetown’s tiny Unum restaurant, and Penny Pritzker emerges in a coral suit, like a tulip squeezing through the drab weather. Pritzker is always well appointed, but design trumps fashion. When she was building Vi, the senior-residence chain, she took the same pride in its appearance as she does in the stunning contemporary decor of her home in Chicago’s Lincoln Park neighborhood. Nevertheless, electric orange-pink is a bold choice, considering she’s meeting with the President and Vice President after our lunch. “It’s spring,” she shrugs.

Pritzker could probably show up in the Oval Office in flip-flops and jeans if she wanted. Barack Obama and his in-laws (Michelle’s brother, Craig Robinson, and family) were regular guests at her Lake Michigan vacation house in the ’90s when he was a University of Chicago law school professor. Indeed, there are those who would argue that he wouldn’t even be in the Oval Office without the millions she raised to fight Clinton.

The alliance is an odd one. Pritzker grew up with a grandfather who stashed nearly all his fortune in offshore trusts to avoid an IRS he considered confiscatory. Cousins recall that Penny’s first task at Hyatt was a Section 1031 real estate exchange to defer capital gains. A Boston Hyatt’s use of nonunion labor was a mark against her. By contrast, Obama embraces unions, has a contentious relationship with big business, and has criticized tax dodgers.

All of which made it hard for Obama to reward Pritzker with the Commerce Secretary post after he was elected in 2008. Critics turned up the political heat as soon as her name was floated as a candidate. In addition to labor protests, her ties to the failed Superior Bank would cause an uproar. Regulators blamed the 2001 collapse of the bank — bought by Jay with his close friend, New York developer Alvin Dworman, in 1987 — on risky subprime investments and accounting practices that masked the growing losses. “Primary responsibility for the failure of Superior Bank resides with its owners and managers,” a 2002 General Accounting Office report concluded. Penny was chair from 1991 to 1994 and subsequently was a director of the thrift’s holding company. In the months leading up to its collapse, she led negotiations to recapitalize the bank, but the $351 million plan was scrapped when it became clear toxic assets had swamped any viable future. “I went in and tried to clean it up, and got caught up in a mess,” Penny says. Dworman declined to comment. When the bank failed, uninsured depositors lost an estimated $10 million and the Pritzker family agreed to pay a $460 million fine without admitting wrongdoing.

Aside from those controversies, Pritzker was forced to sit out the first Obama term for personal reasons: She was legally obligated to the family to unwind Hyatt. When the selloffs finally reached completion, she and Poorman launched PSP Capital, a new investment firm. Pritzker was poised for the next chapter in executive life. Then, last spring, the White House called.

In less than a year at Commerce, Pritzker has already tried to find ways to facilitate private sector startup activity. She has released valuable data her department routinely collects on weather (via the National Oceanic and Atmospheric Administration), Americans (the Census Bureau), and the economy (the Bureau of Economic Analysis) in hopes that entrepreneurs will use the information to create new firms or develop software (think Yahoo’s weather app) that analyzes or reconfigures the numbers. Pritzker’s foray into senior housing was built on Census numbers, so she knows firsthand how big data can mean big dollars. “We’re trying to get more of our data out there to creative minds,” she says.

“Commerce Secretary” suits the personality of a woman raised in the hospitality business. The post was mostly vacant or irrelevant during Obama’s first term. So now she hangs an OPEN FOR BUSINESS sign on her door and travels the country telling companies she wants to help them. She steers clear of controversy, focusing on the issues business and the Obama administration can agree on: trade and investment, supporting advanced manufacturing, helping American companies export overseas. But as the nation’s economic growth still lags, veteran business leaders want her to serve as their advocate with Obama on more politically charged fronts. Business Roundtable chief John Engler complains that White House invitations to CEOs don’t translate into follow-through on policies — lowering corporate tax rates, reforming immigration, easing regulatory burdens, and approving the Keystone pipeline. “She’s well able to do more than she’s been tasked to do,” says Engler. “There could be more of a bully pulpit for economic growth.”

Two issues business leaders will be watching: how vigorously she presses this White House to stand up to Democratic Party critics of free-trade agreements and whether the administration moves to lower the world’s highest corporate tax rate.

Insiders say Pritzker has the President’s ear on those issues and more. Her input, based on talks with Silicon Valley, informed White House plans for reforming the NSA, as well as the April report on how tech firms treat and protect the customer data they collect. Her reach extends to foreign affairs: In early May she was on the phone to CEOs asking them to cancel attendance at a Russian economic forum — an attempt to go beyond sanctions in punishing Vladimir Putin for aggression against Ukraine.

Pritzker still does the occasional triathlon. I ask her how many marathons she’s run. She can’t remember. “Maybe seven?” she pauses to think. “Eight?” That’s the answer of a woman who just might have the endurance it will take to transform her sprawling bureaucracy into a force for economic growth. If she succeeds, her boosters predict a run for political office. Or, if she chooses, a startup in Silicon Valley. She’d be at home in either arena.

This story is from the June 16, 2014 issue of Fortune.

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