Well I’m rarely one for theorycrafting but I’ll try my hand at it. To be quite honest this is more of a headcanon, but hear me out anyway. There will be a lot of reaching but its all for fun.

Not all of you might know my personal theory on how penny and Ironwood are related, but I believe Ironwood is kinda like a second father to Penny, he has a sort of fatherly affection for her, and has a troubled romantic past with Penny's actual father (read her creator).

While it’s more fluffy than anything I feel there could be at least some truth to it. The way Penny hides behind Ironwood in the last episode implies that Penny feels some sense of security with him.

http://imgur.com/42LdKDG

Penny herself also mentions in Painting the town, in a chipper tune. “They like to protect me too!” These people are obviously under the employ of Ironwood, and I like to believe that they’re under his orders to protect Penny, and to treat her with care. It is also implied Ironwood is the one that wants to restrict Penny’s communication with RWBY.

We can also assume that most decisions regarding Penny’s safety and exposure to the public fall ultimately on Ironwood and Penny’s father. I like to believe Ironwood wants Penny to have fun, as long as she’s supervised.

http://imgur.com/jRWVG0O

Now let’s go into the storybook counterparts. James Ironwood is supposed to be a reference to the Wizard of Oz’s Tin Man. Or rather Tin Woodman. Someone who believes he has no heart, but actually is the most tenderhearted one of them all. Both Ironwood and Penny draw parallels to this character. Ironwood for all his military bravado, simply wants to get human lives out of danger. He doesn’t want to endanger any more human lives, especially children. This contrasts with Ozpin who is perfectly capable of letting things unfold and put children in harm’s way in order to resolve them. Ironwood pushes his robot agenda fiercely as to save more human lives.

Penny exhibits this trait in a different fashion. She believes herself to be not real, to be simply a weapon, but we the viewers and Ruby see her differently. Despite Penny being created to be a weapon, she is the most kindhearted and innocent of all the characters. She despite not having a heart, has the most heart. (In addition she’s literally made out of metal like the tin man.)

While parallels between Ironwood and Penny are fine. I really want to propose the direct investment Ironwood might have in Penny. We all know Ironwood had a hand in Penny’s creation, but what if he had an arm in it? (I literally made this post just to make this pun.) Let’s revisit a popular fan theory.

http://imgur.com/42aAtjq

This is the best picture I could find that displays this, but Ironwood’s righthand/arm is never exposed while his left arm is constantly bare. A lot of people believe it was chopped off and now he has a robo arm which admittedly coincides with the whole tin man motif, but let’s ask how he lost his arm.

Now the most likely option is a Grimm related incident, but I’m not buying it. If the Grimm are able to completely deplete Ironwood of his aura enough to rip his limb I’m pretty sure he’d be a goner. Look at Weiss. She was injured enough that it left a lasting scar, but she still has her eye and her vision. Fox looks extremely scarred but no limb loss, and it looks like he’s been hurt all over.

I believe Ironwood cut off his own arm on purpose, why you might ask?

http://imgur.com/UfvKZDY

Does this seem at all reminiscent? Both men lost their arms in order to bind a soul to a metal suit. This is where I jump the shark. My theory is that Ironwood’s arm was used to bind Penny’s soul (jury’s still out on whether it’s synthetic or an organic recycled soul.) to her ‘body’. According to the rules of remnant a being must have a soul to produce aura, being alive is not enough. If Penny were simply alive without a soul, just a sentient robot, she’d be more akin to Grimm than a human, but Penny obviously has a soul as it can be sensed, and she has a semblance. I dont think science has come that far in remnant. I believe they used a more ancient method. Humans in remnant are implied to come from dust, I believe Ironwoods arms was used to create a sort of primordial dust, one capable of creating life.

There isn’t much evidence supporting this theory, but there are little hints. The biggest one is that Penny is yet to be mass produced. Penny’s creation is a obviously a breakthrough in modern science. So why haven’t there been more models or more penny’s? This implies that artificial humans are extremely difficult of producing. If my theory holds any water at all it means that people would have to be chopping off limbs to create more synthetic humans. In addition Ironwood still seems to be very enthusiastic about promoting his standard non-sentient robots, and he doesn’t seem to be too invested on capitalizing on her creation. I like to think it’s out of personal affection..

I do realize that a lot of my theory/headcanon relies on giving ironwood the benefit of the doubt in his interactions with penny, and it is a very long reach, but hey i think the theory’s cute and penny having two dads would be cool

TL:DR: Pinocchio is made out of pinewood. Penny is made out of Ironwood. Tin Man has a Tin Daughter