Just an idea I've been mulling over. Usually, when a leader was killed in battle it would have a bad effect on units nearby. Here is what I think would add this without detracting from the gameplay. Using a variant of the elephant 'rampage' rule - when a named leader is killed, all adjacent units of that side throw two dice and take losses only if their colour comes up.
As an alternate version of the rule, since the loss of the leader was more of a demoralizing event then one that inflicted losses, all adjacent units throw 2 dice and retreat for each banner thrown (using standard retreat rules when a banner is rolled). Just a thought/suggestion.
Just bear in mind all, that a leader is a loss of one whole banner, the same as a key unit. Thus since banners are not dead people, they are loss of morale, loss of cohesion, fatigue, etc, the loss of a leader means I need one less banner to break your army. That is often such a decisive advantage by itself, that in games that require only 5 banners for victory, leader loss is pretty much the game in a lot of cases.
I'm pleased that people have commented on this. I think I will try the retreat roll and see how it goes. I tend to agree that loosing units would be too much damage for a morale issue. I'll let you know.