What if I play the leadership card, "Rally all Units?" Do I similarly reduce my House morale for every unit rallied? In theory, that could result in a loss of up to seven morale (if all hexes adjacent to leader occupied by friendly units).
You do not adjust morale when using the card.
Btw., since command range it two hexes, you can rally a lot more than just 7 units with the card (19, I think).
On the other hand, if there is no morale reduction, it makes the rally leadership card very powerful - with no real downside. What do you think? I couldn't find an answer in the rulebook or the official faq.
The downside to the card is that you can order no units with it. That's a big downside, especially in the first rounds. Most often, you have more units than you can order, and if, say, you get to draw three leadership cards per round, and you get two "command 2" and one "rally all", that is quite bad (just happened to me in the first round of scenario 13). Even if you can rally a lot of units, how are you going to command them?
On the other hand, in that last rounds, you can often command most of your units, but your commanders will not have that many units in command range. So, the number of units you could potentially rally with the card is largely irrelevant. Still, I find the card more powerful in the endgame, even if you only use it to rally one unit (the commander).