The M16's ineffectiveness was also that it was hot garbage in its first iteration.
But @bdutton is right. US infantry doctrine since before WWII has stressed firepower in a suppressive role (rifles have never been the killing weapons on modern battlefields). That requires a greater ammo load, which favored the lighter .223 round (since you can carry more of them). Stopping power was a secondary consideration, and the unstable nature of the 5.56mm round that caused tumbling and ruptures was more a side effect than an intended one (and arguably against international law, as well.)