Quote Originally Posted by Antagonist
I haven't actually noticed the morale penalty in practice either, I just saw it mentioned in the tooltips. Perhaps it wasn't implemented, or the penalty isn't high enough to be really noticable.
It is indeed possible that it was never implemented, but morale penalties are often tricky to spot. There are people swearing that high-dread generals cause an enemy to rout much faster, but the developers have already stated that dread has no effect whatsoever on the battlefield.

If it is just a small thing like -2 morale you may not notice it, but it will affect the battle. -2 will not turn an clear victory into a heroic one, but it may turn a closely fought battle in your favour.