Quote Build #1417:

Added morale penalty with the following rules: For each 10,000 units in one cell morale of all armies in this cell is reduced by 1%, but it will not go less than 25%

That's what decreases the morale of your troops. While 2% isn't something you need to really worry about, if you want to lose the penalty, spread your troops across more cells. But that would bring up the need to have more than one defensive army with a shield, so it's not really worth it.

Quote shorlunch:

I need to enlist more rangers/Swords/pikes?

The composition doesn't matter only the numbers.

Quote shorlunch:

How does morale affect my troops?

Morale decides the number of troops in an army or in a cell that will fight. Every unit has a basic morale and certain things can increase / decrease that number:
It can be increases by the leadership ability of heroes in that army, the leadership ability of your order or by artifacts.
It can be decreased by the morale penalty mentioned above.
(I hope I did not forget anything here. )

Indeed, thank you.