The presence of an officer on a mission reduces all morale losses and boosts all morale increases by 10 to 25%, depending on their rank (only the highest one alive counts).
The highest rank modifies these values by 50%.
However, the death of an officer also means a more severe morale hit than death of a mere soldier, up to 175% of the normal value.
Enemies are not affected by these rules, but their leaders are often hardest to panic - so strike right in the heart.