Normally, when entering dangerous missions (combat) or encounters; Units become war-weary and will gradually sustain penalties to morale rolls.

What triggers the 'Dangerous Mission Penalty' (hereafter: DMP)?
Result: Any of the above will result in a -5% penalty to morale checks for each instance of DMP.

Duration: DMP lasts for twice as many rounds as the total DMP value, and the duration restarts if the Unit receives another instance of DMP.  You can reduce the amount of DMP by completing quests for NPCs, the benefactors of whom share a race with the Unit in Question. (Your Troops tend to appreciate it when they feel that their efforts mean something to the world around them and affects positive change.)

The Boost Morale Action can be used to reduce instances of DMP.

Orcs: Orcs NEVER suffer this penalty.  Even one, single Orc unit sent to fight a Dragon will not suffer the morale penalties from this mechanic; they are simply too stubborn to be afraid.  They can still flee a fight as a result of normal combat (but, never with this penalty to the roll: the +5% morale bonus always applies as well.)

Finally: If a Unit Enters into Combat with five (5) or more instances of DMP, it must immediately make a Morale Check.  Anything less than a success and it flees before the fight begins.