I would argue that death-punishment of units, be it either the current system of total annihilation or the more permissive (and I think better overall for player and developer) system that Ailric described in this thread
would naturally cause players to have units flee from battle when they got too weak. As it stands a player's best interest is to not mindlessly bash units together until the enemy die, but to carefully make sure their individual squads don't get killed entirely. When and how they decide to retreat, be it one squad, one section, or the whole army naturally happens for most players. Though moral is a cool idea, I don't think it should cause units to retreat such as in Total War as others pointed out (though Total War is great and built around ideas like moral very well).