Captain Watters was scared. The more scared he got, the more he thought acting tough would keep it from showing. And it worked, at least with his crew of kids, and even Nog. Yes, Nog should have taken command, but I can also understand that he didn't feel able to press that point with Watters having being acting captain for much longer than Nog had been an ensign. I wouldn't count on the Valiant's security, kids themselves, to back Rom in that situation.