[Boron]

i would guess it is some form of average .

the manual is not too helpful there but a small hint is in the description at page 17 :
when the average morale loss is greater than the number of units in the squad , the squad may rout .

so a very big squad helps . i dunno exactly where are borders but when i have e.g. 100 principles in 1 squad they don't start routing before there are only 20 - 25 or so left in my expierience .

an interesting test would be a horde of 200 imps or 200 barbarians or other very low morale units . but i guess until there are only less then 50 left they will never rout .