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Will Penny Pritzker become the next U.S. commerce secretary?

Melissa Harris

Chicago Confidential

March 3, 2013

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In late 2009, President Barack Obama appeared on "60 Minutes" and said "fat-cat bankers" were smothering his efforts to craft new rules for Wall Street.

As soon as the reforms cleared Congress six months later, the president's top advisers launched a campaign to try to repair the White House's damaged relationship with business.

In Chicago, they turned to Penny Pritzker, the billionaire and record-breaking Obama fundraiser who is now a potential nominee for U.S. commerce secretary, according to sources.

Pritzker quietly convened about a dozen Chicago-area CEOs, both Republicans and Democrats, many of them personal friends, for a private meeting with the president at the Chicago Cultural Center while he was in town for Democratic fundraisers.

The president took notes.

"She wanted to make sure he was hearing strong points of view," said Byron Trott, founder of Chicago-based BDT Capital Partners and a Republican, who attended at Pritzker's invitation.

Trott said Pritzker filled the room with executives who believed the president "wasn't listening and wasn't getting appropriate advice." Trott said the gathering was one reason he couldn't think of a better choice for commerce secretary.

"She knows the president, and she's willing to be firm with the president," Trott said.

If Obama nominates Pritzker to run the Commerce Department, the spotlight will turn on a powerful woman who has deep business experience and a talent for politics. Pritzker is worth an estimated $1.8 billion. She is an executive who runs her own investment firm, sits on the Chicago Board of Education and led Obama's fundraising operation during his first presidential campaign.

Yet until now, Pritzker, 53, has remained, for the most part, just beyond the glare of public notice and discussion. While her name is well known, her image is connected most easily to her family's extraordinary wealth and its reputation for privacy.

Pritzkers don't mind putting their names on philanthropic projects, such as Millennium Park's Pritzker Pavilion or The Pritzker Architecture Prize, but no member of the family has held elected office. Aside from her brother J.B., who unsuccessfully ran for Congress in 1998, family members have seemed satisfied working to build their wealth rather than pursuing a tradition of government service in the vein of the Kennedys or the Daleys.

In fact, the Pritzkers and the government are sometimes cast as foes, given the Chicago family's oversight of a bank seized by federal regulators in 2001 and multiple disputes with the Internal Revenue Service over offshore tax shelters, which were established before Penny Pritzker reached adulthood.

These aren't the only issues likely to be raised by political opponents as part of the nomination process. If confirmed, Pritzker would need to disclose her investments, calling attention to such issues as the fact that one of the companies she co-founded has actively solicited and won business from government pension boards. Additionally, Hyatt Hotels, which the family founded and where Pritzker sits on the board, is embroiled in a long-running dispute with a powerful union.

Pritzker withdrew her name from consideration for the Commerce job four years ago due to obligations to her family, for whom she was still overseeing billions in assets, and the financial crisis, which was putting some of those assets at risk. Now, her friends say, she wants the job.

"She likes to contribute at the intersection of business and politics," said Greg Brown, chief executive of Motorola Solutions Inc. "And ... I think she can add value. People like things they may not be good at. Penny happens to like it and can add value."

If Obama nominates Pritzker and she becomes commerce secretary, the appointment would not just elevate Pritzker's profile. It also would cement her independent identity.

It's not an accident this is happening now. The Pritzkers as a singular unit no longer exists. A 10-year family agreement, which outlined how the Pritzkers would divide their empire, wound down in December 2011. It and a related lawsuit have resulted in some family members cutting off contact with one another. Yet each family member is now free to pursue his or her own interests — financial or political.

"It gives her a chance to be a part of something that's unique," said William Daley, a former U.S. commerce secretary during the Clinton administration and a brother and son of former Chicago mayors. The post "would give her her own persona, independent from the family name, which has had three generations of enormous success in business."

By the end of the family agreement, Pritzker, her cousin Tom and Nick, a son of her great uncle, were the family's three key executives, responsible for both running and selling off businesses.

Pritzker is one of a small number of women who have shepherded multibillion-dollar companies. Among them was credit-reporting agency TransUnion Corp. The family sold 51 percent of the company to Chicago-based private equity firm Madison Dearborn Partners LLC for about $385 million in 2010. The Pritzkers and Madison Dearborn have since sold the entire company.

"It's the only time in my career I've bought a business from a woman," said Tim Hurd, who recently left Madison Dearborn to start his own investment firm. "So it's very, very rare. And I would say how that manifests itself in Penny's situation is that I think being a woman makes Penny want to work harder. Penny could have chosen the very easy path in life; instead she elected to pursue a very hard path."

At a 2009 speech at the Women's Business Development Center's annual conference, Pritzker told the story of how she broke into her family's "boys club."

Her grandfather, A.N. Pritzker, was turning 80, and her mother told her she could give him anything she wanted. So the teenager wrote him a letter: "Dear Grandpa, I would like to know why you only talk to the boys about business. For your birthday, I want you to understand that young women are interested in knowing what you know, too."

Pritzker's father, Donald, the CEO of Chicago-based Hyatt Corp., died three years earlier at age 39 of a heart attack while playing tennis at a Hyatt in Hawaii. Her grandfather responded, "Penny, I was born in 1896. How am I supposed to know women are interested in business? Come and spend time with me, and I'll give you some basics in accounting."

Those lessons, she said in her speech, solidified her desire to go into business. She graduated from Harvard University, majoring in economics. She went on to Stanford University for her law degree and MBA, which she obtained concurrently. She completed her first Ironman triathlon a few weeks after law school graduation despite spraining her ankle in the first mile of the marathon leg.

In 1985, she joined the family business as a financial analyst at Hyatt. The next year, A.N. Pritzker died. He had built a multibillion-dollar empire. Yet he had shifted so many assets into trusts, the executors of his estate reported his net worth to be $25,000. The Internal Revenue Service sued to collect $53.2 million in estate taxes. The two sides settled in 1994 for $9.5 million plus interest.

The desire to lower tax burdens has always been a consideration in Pritzker dealings.

According to a 2008 Bloomberg profile of Pritzker, one of her first assignments was to find a building the family could swap for a Hyatt property they wanted to sell, enabling them to incur lower taxes than they would in a simple sale. Within 10 days, she had it lined up, Tom Pritzker told Bloomberg.

"She did the whole thing," Tom said. "All you had to do is say, 'Penny, will you please go do this?'"

The first business she launched for her family, now called Vi, runs upscale retirement communities. A source close to the family said Pritzker had decided there were too many Pritzkers in the hotel business and doing something else would be beneficial for her career.

"Hyatt was considering starting a new company to address that need (in the senior living sector), so I went to my superiors, who were family members, and said I wanted to build it," Pritzker said in the 2009 speech. "At one point in the early '90s, we had five properties up and operating, but we were struggling ... and the business was losing money. I was very concerned that we might be making a mistake with my family's resources.

"So I took a deep breath and went to speak with my Uncle Jay, who was basically 'chairman of everything.' I explained my concerns, and suggested that perhaps we should liquidate the business. I also told him that if we didn't show progress in six to 12 months, then he should fire me."

Her forthrightness had the opposite effect. In 1991, when Ronald Galowich retired as director of the Pritzkers' nonhotel land holdings, Jay put Penny in charge. The effort became Pritzker Realty Group, and it expanded quickly. She started with apartment buildings, then built entire neighborhoods and shopping centers.

"In the early days at Pritzker Realty Group, our entire staff consisted of a secretary, a lawyer, an analyst and me," Pritzker said in the 2009 speech. "One minute I was running cash flow projections, often on the back of an envelope, and the next, I'd be trying to decide which asset class should be our focus of investment."

Over time, Pritzker's role in the family expanded to include building the Hyatt Center and launching businesses, such as off-site airport parking company The Parking Spot. She served on the board of industrial conglomerate Marmon Group; was chairman of TransUnion from 2005 to 2012; chairman of Superior Bank, a rare corporate failure for the family, from 1991 to 1994; and she remains on the board of Hyatt. She also served on the boards of nonfamily holdings, LaSalle Bank and Wm. Wrigley Jr. Co.

Her business roots have been well documented. Her political ones, less so. Her mother, who died soon after Penny graduated from Harvard, was involved in politics. According to a business associate who declined to be named, Pritzker once came home from school to find her mother stuffing envelopes for a U.S. Senate candidate in the living room with Nancy Pelosi.

Her friendship with the Obamas was built through Martin Nesbitt, the co-founder of The Parking Spot, which the Pritzkers sold in 2011. Pritzker's children wanted to get involved in basketball, and Nesbitt recommended his kids' team, which was coached by Craig Robinson, Michelle Obama's brother.

Obama asked for Pritzker's support for his campaign for U.S. Senate during a visit to the Michigan summer home of Pritzker and her husband, Bryan Traubert. And senior White House adviser Valerie Jarrett believes it was Nesbitt who suggested they recruit Pritzker to lead Obama's 2008 presidential fundraising effort, an offer Pritzker initially resisted. Traubert persuaded her to do it, telling his wife that destiny was knocking on the nation's door.

"When you give Penny an assignment and she owns it, as she did this, she always overperforms," Jarrett said in an interview for a Tribune profile on Nesbitt. "We knew it was a long shot that the president would win, but (Marty and I) were both convinced that with Penny as his principal fundraiser that at least we wouldn't have to worry about sufficient resources."

After Obama's election, Pritzker joined two White House councils focused on the economy. From one of them sprouted a White House-endorsed nonprofit initiative Skills for America's Future, which seeks to match employers with community college graduates. Pritzker chairs the national effort's advisory board and the Chicago pilot program.

Shortly after Rahm Emanuel was elected mayor, he asked Pritzker to join the Chicago Board of Education. She is the first billionaire to serve there, further aggravating unions.

For four years, housekeepers and other Hyatt workers in Chicago have worked without a labor agreement. The fight has grown intensely personal, with the union and its allies confronting Hyatt board members at their workplaces and producing a movie about a then-Pritzker-owned subsidiary's decision to shut down an East Chicago manufacturing facility and accept millions in tax incentives to move jobs to Louisiana.

Hyatt has a proposal in front of hotel union Unite Here Local 1 that includes wage and benefit increases, but the union nationally has balked over rules around organizing, Hyatt says. The local, based in Chicago, declined to comment.

"She was a financier of Stand for Children, a nonprofit that parachuted in and pumped a lot of money into Illinois candidates who support efforts to attack bargaining rights for teachers under the premise of child-friendly policies," said Jackson Potter, staff coordinator for the Chicago Teachers Union. "She is part of the billionaires' club financing these attacks on the teachers union."

As for Hyatt's dispute with the union, Potter said Pritzker's silence on the matter shows her allegiance with the 1 percent.

"If you're going to lead the country, you better have some concern and sympathy for these people," Potter said. "And so far, we haven't seen enough of that from her."

Pritzker, who declined to be interviewed for this article, is rarely, if ever, afraid to speak her mind in private, according to friends. For instance, Pritzker said no to making a multimillion-dollar contribution to the pro-Obama super PAC Priorities USA Action, according to two sources. Her refusal to write a large check became a source of tension between Pritzker and high-level Obama supporters, a source said.

Still, the issue didn't divide Obama and Pritzker, who was at McCormick Place on election night, conducting interviews with the major cable networks. And the administration has done nothing to quash reports that Obama is considering Pritzker for the commerce secretary post.

"I put her on the school board because ... she's not scared to tell me, 'No,'" Emanuel said in an interview. "Now if I tell her I want her to do something, I need her to do something, more likely than not she will do it. But she will tell me, if she disagrees with me, 100 reasons why she doesn't think it's right, and then she'll do it. That is what you want. 'Yes' people are a dime a dozen. Getting someone ... willing to be in the room for the tough calls and execute is very rare. That's Penny Pritzker."

With the breakup of the family business, Pritzker chose to move her office out of the Hyatt Center and form her own investment company, PSP Capital Partners, in which she is the sole investor.

Since 2010, with her own organization, she has invested $560 million in real estate, mostly in apartments that are under construction in California and the Washington, D.C., area. An additional $415 million in real estate development is in the pipeline, according to a source.

She also co-founded Artemis Real Estate Partners LLC in 2009, a real estate investment firm based in Maryland. The company has received investments from pension funds, including $300 million from the New York State Common Retirement Fund, the third-largest pension plan in the country.

PSP Capital also acquired a majority stake in Halo Branded Solutions, a Sterling, Ill.-based seller of promotional goods, and a Minnesota tomato grower, Bushel Boy Farms.

Pritzker and Traubert have developed their own philanthropic strategy, focused in part on reducing obesity and improving public education, particularly in the area of principal quality.

But the machine could run without her. On the philanthropic side, Traubert, an ophthalmologist, already is the president of the Pritzker Traubert Family Foundation. On the business side, she could make divestments or, a source said, sign an ethics agreement as newly appointed Secretary of State John Kerry has done.

"We do really need somebody who can break down at least the perceived barrier between the administration and business," said Tom Wilson, the Allstate Corp. CEO and friend.

mmharris@tribune.com

Twitter @chiconfidential